BABULAL VARDHARJI GURJAR versus VEER GURJAR ALUMINIUM INDUSTRIES PVT. LTD. & ANR. on 14 August 2020

368

SUPREME COURT REPORTS

[2020] 13 S.C.R.

ABABULAL VARDHARJI GURJAR

v.

VEER GURJAR ALUMINIUM INDUSTRIES PVT. LTD. & ANR.

(Civil Appeal No. 6347 of 2019)

B

AUGUST 14, 2020

[A.M. KHANWILKAR AND DINESH MAHESHWARI, JJ.]

Insolvency and Bankruptcy Code, 2016 – ss.7 and 238-A –Limitation Act, 1963 – s.18 and Art.137 – On or about 22.12.2007,the Lender Banks sanctioned and extended various loans, advancesCand facilities to the corporate debtor-respondent no.1 – Therespondent no.1 defaulted in payment of the amount due againstsuch loans, advances and facilities, its account was classified asNon-Performing Asset on 08.07.2011 – Recovery proceedingsagainst the corporate debtor by the consortium of lenders u/s.19 ofDthe Recovery of Debts due to the Banks and Financial InstitutionAct, 1993 before the DRT was started – On or about 21.03.2018,the respondent no.2, while stating its capacity as the financialcreditor, for being the assignee of the loans and advances disbursedby the creditor Bank to the corporate debtor, filed an application u/s.7 of the Code before the Adjudicating Authority and soughtEinitiation of Corporate Insolvency Resolution Process (CIRP) inrespect of respondent no.1 – The Adjudicating Authority (NCLT)admitted the said application and initiated CIRP u/s.7 of the Code– Before the Appellate Tribunal (NCLAT), the appellant-the directorof the respondent no.1 company contended that the claim was barredFby time – However, the appeal was dismissed by the AppellateTribunal – Aggrieved, the appellant filed appeal before the SupremeCourt – The Supreme Court remanded the matter to the AppellateTribunal for deciding the issue of limitation with respect to theapplication u/s.7 of the Code – The Appellate Tribunal held that theright to apply u/s. 7 of the Code accrued only on 01.12.2016 i.e.Gwhen the Code came into force and hence, the application filed bythe Financial creditor in the year 2018 is not barred by limitation;and that the period of limitation is 12 years for recovery of possessionof the mortgaged property, therefore, the claim is not barred bylimitation – On appeal, held: The period of limitation for anH

BABULAL VARDHARJI GURJAR v. VEER GURJARALUMINIUM INDUSTRIES PVT. LTD. & ANR.

application seeking initiation of CIRP u/s.7 of the Code is governedby Art.137 of the Limitation Act and is, therefore, three years fromthe date when right to apply accrues – In the instant case, theapplication made by the respondent no.2 u/s.7 of the Code in themonth of March 2018, seeking initiation of CIRP in respect of thecorporate debtor with specific assertion to the date of default as08.07.2011 is clearly barred by limitation for having filed muchlater than the period of three years from the date of default as statedin the application – The NCLT had not even examined the questionof limitation – Whereas, the NCLAT had decided the question oflimitation on entirely irrelevant considerations – There is nothing inthe Code to even remotely indicate if the period of limitation for thepurpose of an application u/s.7 is to commence from the date ofcommencement of the Code itself – The NCLAT proceeded only onassumption, without any foundation and without any basis – Further,the reasoning of the NCLAT that property being mortgaged, theperiod of limitation is of twelve years is again erroneous and donot stand in conformity with the dictum of the Supreme Court – Asin the B.K. Educational Service, it was held in no uncertain termsthat the limitation provided in Art.137 governs the application u/s.7 of the Code – Therefore, the impugned orders deserve to be setaside and the application filed by the respondent no.2 is rejectedas being barred by limitation.

Allowing the appeal, the Court

Conclusion

Allowing the appeal, the Court

HELD : 1. When Section 238-A of the Insolvency andBankruptcy Code, 2016 is read with the consistent decisions ofthis Court in Innoventive Industries, B.K. Educational Services,Swiss Ribbons, K. Sashidhar, Jignesh Shah, Vashdeo R. Bhojwani,Gaurav Hargovindbhai Dave and Sagar Sharma respectively, thefollowing basics undoubtedly come to the fore: (a) that the Codeis a beneficial legislation intended to put the corporate debtorback on its feet and is not a mere money recovery legislation; (b)that CIRP is not intended to be adversarial to the corporate debtorbut is aimed at protecting the interests of the corporate debtor;(c) that intention of the Code is not to give a new lease of life todebts which are time-barred; (d) that the period of limitation for ABC

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Aan application seeking initiation of CIRP under Section 7 of theCode is governed by Article 137 of the Limitation Act and is,therefore, three years from the date when right to apply accrues;(e) that the trigger for initiation of CIRP by a financial creditor isdefault on the part of the corporate debtor, that is to say, that theright to apply under the Code accrues on the date when defaultBoccurs; (f) that default referred to in the Code is that of actualnon-payment by the corporate debtor when a debt has becomedue and payable; and (g) that if default had occurred over threeyears prior to the date of filing of the application, the applicationwould be time-barred save and except in those cases where, onCfacts, the delay in filing may be condoned; and (h) an applicationunder Section 7 of the Code is not for enforcement of mortgageliability and Article 62 of the Limitation Act does not apply to thisapplication. [Para 30][420-B-E]

Whether Section 18 Limitation Act could be applied to theDpresent case.

2. On the admitted fact situation of the present case, whereonly the date of default as ‘08.07.2011’ has been stated for thepurpose of maintaining the application under Section 7 of theCode, and not even a foundation is laid in the application forEsuggesting any acknowledgement or any other date of default, inview of this Court, the submissions sought to be developed onbehalf of the respondent No. 2 at the later stage cannot bepermitted. It remains trite that the question of limitation isessentially a mixed question of law and facts and when a partyseeks application of any particular provision for extension orFenlargement of the period of limitation, the relevant facts arerequired to be pleaded and requisite evidence is required to beadduced. Indisputably, in the present case, the respondent No. 2never came out with any pleading other than stating the date ofdefault as ‘08.07.2011’ in the application. That being the position,Gno case for extension of period of limitation is available to beexamined. In other words, even if Section 18 of the LimitationAct and principles thereof were applicable, the same would notapply to the application under consideration in the present case, looking to the very averment regarding default therein and forwant of any other averment in regard to acknowledgement. [Para33.1][422-D-G]

The reasonings of NCLAT

3. Only two reasons essentially appear to have weighedwith NCLAT to hold that the application in question is withinlimitation: One, that the right to apply under Section 7 of theCode accrued to the respondent financial creditor on 01.12.2016when the Code came into force; and second, that the period oflimitation for recovery of possession of the mortgaged propertyis twelve years. The reasonings so adopted by NCLAT do notstand in conformity with the law declared by this Court and couldonly be disapproved. [Para 35][423-E-F]

4. The question as to whether date of enforcement of theCode (i.e., 01.12.2016) provides the starting point of limitationfor an application under Section 7 of the Code and hence, theapplication in question, made in the year 2018, is within limitation,is not even worth devoting much time. A bare look at theimpugned order leaves nothing to guess that such observationsby the Appellate Tribunal had only been assumptive in naturewithout any foundation and without any basis. There is nothing inthe Code to even remotely indicate if the period of limitation forthe purpose of an application under Section 7 is to commencefrom the date of commencement of the Code itself. Similarly,nothing provided in the Limitation Act could be taken as the basisto support the proposition so stated by the Appellate Tribunal.In fact, such observations had been in the teeth of law declaredby this Court in the case of B. K. Educational Services. [Para36][423-G-H; 424-A-B]

5. The other observations as made and the reasoning asadopted by the Appellate Tribunal in the impugned order, thatthe property having been mortgaged, the claim is not barred bylimitation because of the period of limitation of twelve years withregard to mortgaged property, had again been erroneous and donot stand in conformity with the dictum of this Court. [Para37][424-E-F]

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A6. The Appellate Tribunal was conscious of the decision ofthis Court in B. K. Educational Services wherein it had been heldin no uncertain terms that the limitation provided in Article 137governs the application under Section 7 of the Code. WhenArticle 137, being the residuary provision on the period oflimitation for “other applications” is held applicable by this CourtBfor the purpose of reckoning the period of limitation for anapplication under Section 7 of the Code, it remains ratherinexplicable as to how the Appellate Tribunal could have appliedany other Article of Limitation Act (and that too relating to suits)for the purpose of such an application? [Para 37.1][424-F-H]

C

7. There remains nothing to doubt that the AppellateTribunal had been in error in applying the period of limitationprovided for mortgage liability for the purpose of limitationapplicable to the application in question. The observations andfindings in the impugned order are also required to beDdisapproved. [Para 37.4][425-E-F]

8. The discussion foregoing leads to the inescapableconclusion that the application made by the respondent No. 2under Section 7 of the Code in the month of March 2018, seekinginitiation of CIRP in respect of the corporate debtor with specificEassertion of the date of default as 08.07.2011, is clearly barred bylimitation for having been filed much later than the period of threeyears from the date of default as stated in the application. TheNCLT having not examined the question of limitation; the NCLAThaving decided the question of limitation on entirely irrelevantconsiderations; and the attempt on the part of the respondentsFto save the limitation with reference to the principles ofacknowledgment having been found unsustainable, the impugnedorders deserve to be set aside and the application filed by therespondent No. 2 deserves to be rejected as being barred bylimitation. [Para 38][425-F-H; 426-A]

GInnoventive Industries Ltd. v. ICICI Bank: (2018) 1SCC 407 : [2017] 8 SCR 33; B.K. Educational ServicesPvt. Ltd. v. Paras Gupta & Associates: AIR 2018 SC

BABULAL VARDHARJI GURJAR v. VEER GURJARALUMINIUM INDUSTRIES PVT. LTD. & ANR.

5601 : [2018] 12 SCR 794; Swiss Ribbons PrivateLimited and Anr. v. Union of India and Ors. (2019) 4SCC 17 : [2019] 3 SCR 535; K. Sashidhar v. IndianOverseas Bank: (2019) 12 SCC 150 : [2019] 3 SCR845; Jignesh Shah and Anr. v. Union of India and Anr.(2019) 10 SCC 750 : [2019] 12 SCR 678; Vashdeo R.Bhojwani v. Abhyudaya Co-operative Bank Ltd. & Anr.(2019) 9 SCC 158 : [2019] 12 SCR 75; GauravHargovindbhai Dave v. Asset Reconstruction Company(India) Ltd. & Anr. (2019) 10 SCC 572 : [2019] 13SCR 224; Sagar Sharma & Anr. v. Phoenix Arc Pvt.Ltd. & Anr (2019) 10 SCC 353: [2019] 14 SCR 974 –relied on.

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M/s. Mahabir Cold Storage v. CIT, Patna 1991 Supp(1) SCC 402: [1990] 3 Suppl. SCR 469 N.Balakrishnanv. Krishnamurthy (1998) 7 SCC 123 : [1998] 1 Suppl.SCR 403; Anuj Jain v. Axis Bank Limited and Ors.(2020) 8 SCC 401 – referred to.

D

ACIVIL APPELLATE JURISDICTION : Civil Appeal No. 6347OF 2009.

From the Judgment and Order dated 14.05.2019 of the NationalCompany Law Appellate Tribunal, New Delhi in Company Appeal (AT)Insolvency No. 549 of 2018.B

Dr. Abhishek Manu Singhvi, P.S. Patwalia, Sr. Advs, Piyush Singh,Aditya Parolia, Nithin Chandran, Akshay Srivastava, Nidhiram Shrama,Gaurav Goel, Rajesh Kumar, Sonal Jain, Ms. Heena Sharma, IshkaranSingh, Ms. Namrata Singh, Ms. Kajal Sharma, Rajendra Beniwal,Divyanshu Srivastava, Kumar Sumit, Ms. Bano Deshwal, Vishal Thakur,CShriram, Manish Rao, R. C. Kaushik, Advs. for the appearing parties.

The Judgment of the Court was delivered by DINESH MAHESHWARI, J.

Introductory with brief outline and issue involvedD

1. This appeal under Section 62 of the Insolvency and BankruptcyCode, 2016[1] is directed against the judgment and order dated 14.05.2019passed by the National Company Law Appellate Tribunal, New Delhi[2]in Company Appeal (AT) Insolvency No. 549 of 2018 whereby, theAppellate Tribunal has rejected the contention that the application madeEby respondent No. 2 under Section 7 of the Code, seeking initiation ofCorporate Insolvency Resolution Process[3] in respect of the debtorcompany (respondent No. 1 herein), is barred by limitation; and hasdeclined to interfere with the order dated 09.08.2018, passed by theNational Company Law Tribunal, Mumbai Bench[4] in CP(IB)-488/I&BP/MB/2018, for commencement of CIRP as prayed for by the respondentFNo. 2.

2. A brief introduction of the parties and the subject matter as alsoa thumbnail sketch of the relevant orders passed in this matter and theissue involved shall be apposite at the very outset.

2.1. The appellant Shri Babulal Vardhaji Gurjar has been the directorGof the respondent No. 1 company viz., Veer Gurjar Aluminium Industries H

1 Hereinafter also referred to as ‘the Code’ or ‘IBC’.

2 Hereinafter also referred to as ‘the Appellate Tribunal’ or ‘NCLAT’.

3 ‘CIRP’ for short.

4 Hereinafter also referred to as ‘the Adjudicating Authority’ or ‘the Tribunal’ or ‘NCLT’.

Pvt. Ltd.[5] On or about 21.03.2018, the respondent No. 2 JM FinancialAssets Reconstruction Company Pvt. Ltd.[6], while stating its capacity asthe financial creditor, for being the assignee of the loans and advancesdisbursed by creditor bank to the corporate debtor, filed the said applicationunder Section 7 of the Code before the Adjudicating Authority and soughtinitiation of CIRP in respect of the respondent No. 1.

2.2. After having considered the submissions on behalf of thefinancial creditor and the corporate debtor, the Adjudicating Authority,by its order dated 09.08.2018, admitted the application so made by thefinancial creditor and appointed an interim resolution professional[7].Consequent to this order dated 09.08.2018, the corporate debtor(respondent No. 1) is now represented by the interim resolutionprofessional.

2.3. Being aggrieved by the aforesaid order dated 09.08.2018, theappellant preferred an appeal before NCLAT and contended againstmaintainability of the application moved by the respondent No. 2. Theappeal so filed by the appellant was summarily dismissed by the AppellateTribunal by its order dated 17.09.2018. However, the order so passed bythe Appellate Tribunal was not approved by this Court in the judgmentdated 26.02.2019, passed in Civil Appeal No. 10710 of 2018, after findingthat the issue relating to limitation, though raised, was not decided by theAppellate Tribunal. Hence, the matter was remanded to NCLAT forspecifically dealing with the issue of limitation. After such remand, theAppellate Tribunal, by its impugned order dated 14.05.2019, has heldthat neither the application under Section 7 as made in this case is barredby limitation nor the claim of the respondent No. 2 is so barred and has,therefore, again dismissed the appeal. Being aggrieved, the appellanthas approached this Court over again by way of the instant appeal.

3. In the impugned order dated 14.05.2019, the Appellate Tribunalhas observed that the Code having come into force on 01.12.2016, theapplication made in the year 2018 is within limitation. The AppellateTribunal has assigned another reason that mortgage security having beenprovided by the corporate debtor, the limitation period of twelve years isavailable for the claim made by the financial creditor as per Article 61

5 Hereinafter also referred to as ‘the corporate debtor’.

6 Hereinafter also referred to as ‘the financial creditor’.

7 ‘IRP’ for short.

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A(b) of the Limitation Act, 1963[8-9] and hence, the application is withinlimitation.

4. In this appeal, the order so passed by the Appellate Tribunal isin challenge. The appellant would contend that limitation period for anapplication under Section 7 of the Code is three years as per Article 137Bof the Limitation Act, where the date of alleged “default” is the startingpoint of limitation; and in the present case, such date of default beingspecifically mentioned as 08.07.2011, the application filed by therespondent No. 2 in the month of March 2018 is barred by limitation. Onthe other hand, the respondents would argue that the liability in relationto the debt in question having been consistently acknowledged by theCcorporate debtor in its balance sheets and annual reports, fresh period oflimitation is available from the date of every such acknowledgment andhence, the application is within time.

4.1. Thus, the basic issue involved in this matter is as to whetherthe application made by respondent No. 2 under Section 7 of the Code isDwithin limitation.

5. On 09.08.2019, after having heard learned counsel for theappellant and the respondent No. 2 preliminarily, we issued notice to therespondent No.1 and by way of interim order, directed status quo inregard to the proceedings in question.

EThe relevant factual and background aspects: Applicationby the financial creditor

6. The substance of the relevant factual and background aspects,as emanating from the contents of the application under Section 7 movedFby the respondent No. 2 and the observations made by NCLT andNCLAT in the impugned orders as also those noticed from the submissionsmade by the respective parties, could now be summarised as infra.

8 Hereinafter, the Limitation Act, 1963 is also referred to as ‘the Limitation Act’.9 Note: The Articles providing for different periods of limitation are contained in theGSchedule to the Limitation Act, 1963 that is divided in three major Divisions viz., FirstDivision (relating to suits); Second Division (relating to appeals); and Third Division(relating to applications). Each Division is further divided in parts with reference to thesubject matter. However, the Articles in the Schedule are arranged ad seriatim. Hence,for brevity and continuity, the Articles are mentioned with reference to ‘the LimitationAct’ only. The Schedule and particular Part/Division have been referred whereverrequired contextually.H

6.1. On or about 22.12.2007, the lender banks viz., CorporationBank, Indian Overseas Bank and Bank of India sanctioned and extendedvarious loans, advances and facilities to the corporate debtor viz., VeerGurjar Aluminium Industries Pvt. Ltd., who was engaged inmanufacturing of aluminium ingots from aluminium scrap. The corporatedebtor executed various security documents in favour of the lender banksin the years 2008 and 2009, including those of equitable mortgage againstthe facilities so obtained. The Corporation Bank proceeded to rephase/enhance the facilities to the corporate debtor from time to time andlastly on 27.08.2010 wherefor, various additional security documents wereexecuted by the corporate debtor. It has been asserted by the respondentNo. 2 that the Corporation Bank had assigned to it the rights in relationsto debts of the corporate debtor by way of Assignment Agreement dated30.03.2013; and a deed of modification of charge over the assets of thecorporate debtor was also executed on 26.04.2013.

6.2. The corporate debtor having defaulted in payment of theamount due against such loans, advances and facilities, its account withCorporation Bank was classified as Non-Performing Asset[10] on08.07.2011 and that with Indian Overseas Bank was classified as NPAon 05.08.2011. Then, on 15.11.2011, demand notice under Section 13(2)of the Securitisation and Reconstruction of Financial Assets andEnforcement of Securities Interest Act, 2002[11] was issued by IndianOverseas Bank to the corporate debtor and its guarantors. These stepswere followed up with recovery proceedings against the corporate debtorby the consortium of lenders and respondent No. 2 in OA No. 172/2013before the Debts Recovery Tribunal, Aurangabad[12] under Section 19 ofthe Recovery of Debts Due to the Banks and Financial Institution Act,1993[13].

6.3. Even when the aforesaid proceedings were pending beforeDRT, on or about 21.03.2018, the respondent No. 2 moved an applicationbefore the Adjudicating Authority under Section 7 of the Code, in Form1 as provided in the Insolvency and Bankruptcy (Application toAdjudicating Authority) Rules, 2016[14], for initiation of CIRP in relation 10 ‘NPA’ for short.

11 Hereinafter also referred to as ‘the SARFAESI Act’.

12 ‘DRT ’ for short.

13 Hereinafter also referred to as ‘the Act of 1993’.

14 Hereinafter also referred to as ‘the Rules of 2016’.

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Ato the corporate debtor while stating its own capacity as the financialcreditor, for being the assignee of loans and advances disbursed byCorporation Bank to the corporate debtor[15]. Several details and particularsstated in the said application need not be recounted but, the particularsof amount claimed to be in default and the date when such defaultoccurred, as stated in point No. 2 of Part III of the application, areBrelevant for the present purpose and could be usefully extracted asunder[16]:- C

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E6.4. It may also be usefully indicated that Part-V of the application,drawn as per the format in Form 1, required the applicant to state the“Particulars of Financial Debt [Documents, Records and Evidence ofDefault]”. The applicant stated the particulars of various securities held,date of their creation etc., as also the particulars relating to the saidO.A. No. 172 of 2013 before DRT and notices issued thereunder. InFPoint No. 5 of the said Part-V of the application, the applicant wasrequired to attach “the latest and complete copy of the financial contractreflecting all amendments and waivers to date”. In this regard, again,various agreements for loan, promissory notes, tripartite agreements, 15 Note: In its written submissions, the respondent No. 2 has mentioned the date ofGfiling this applic ation as ‘28.02.2018 ’ but the copy of a pplication placed on record as Annexure A-5(pp. 135-158) bears the date as ’21.03.2018’.

16 Note: this extraction is from the copy of application placed on record as Annexure A-5 (at p. 140-142). The expression “DATES” marked with * in the second column isreproduced as found mentioned at p. 141 but, in the format appended to the Rules ofH2016, this entry carries the expression “DAYS”.

consortium agreements and supplemental agreements were mentionedby the applicant. In Point No. 8, the applicant was required to give outother documents “in order to prove the existence of financial debt, theamount and date of default”. The contents on this Point No. 8 of Part-Vof the application could be reproduced as under:- “8. LIST OF OTHER DOCUMENTS ATTACHED TO THISAPPLICATION IN ORDER TO PROVE THE EXISTENCEOF FINANCIAL DEBT, THE AMOUNT AND DATE OFDEFAULT

i.Registered notice dated 05.07.2011 issued by IndianOverseas Bank to the corporate debtor to repay the overdueamount. Hereto annexed and marked as Exhibit MM is thecopy of said registered notice.

ii.Demand notice dated 15.11.2011 issued under section 13(2) of the Securitisation Act by Indian Overseas Bank beingconsortium leader. Hereto annexed and marked as ExhibitNN is the copy of said Demand notice.

iii.Publication of Demand Notice issued in two newspaper i.eBusiness Standard and Saamna under the SARFEASI Actdated 28.12.2011. Hereto annexed and marked Exhibit OOis the copy of said Paper Publication.

iii.(sic). Objection to the Demand Notice and the reply to thesaid Objections by IOB dated 14.01.2012 and 21.01.2012respectively. Hereto annexed and marked as Exhibit PPand Exhibit QQ is the copy of said objection and reply letter.

v.Registered Assignment Agreement dated 30.03.2013between Corporation Bank and (Financial Creditor therebyCorporation Bank assigned the debt due from Corporatedebtor along with the underlying securities in favour of theFinancial Creditor/ Applicant. Hereto annexed and markedas Exhibit RR is the copy of said Registered AssignmentAgreement dated 30.03.2013 between Corporation Bankand Financial Creditor.”

6.5. The application so made by respondent no. 2 came to beregistered as CP(IB)-488/I&BP/MB/2018 before the AdjudicatingAuthority (NCLT). On being noticed, the corporate debtor submitted its A

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Areply in opposition and raised various objections on the contents andframe of the application. It was also contended that various proceedingshad been initiated with the sole aim of browbeating the corporate debtorand forcing it to pay the unrealistic claim of the applicant. With specificreference to the proceedings under the SARFAESI Act, it was contendedthat as per the notice under Section 13 (2), the account of corporateBdebtor with Indian Overseas Bank was classified as NPA on 05.08.2011but, it was not mentioned as to when the loan account with CorporationBank was classified as NPA. The corporate debtor also contended thatits loan account had not been properly maintained by the respectivebanks due to the defect in accounting system and it was clear that theCclaim was arbitrary, inflated and not recoverable. With reference to theproceedings pending before DRT in OA No. 172/2013, it was alsocontended that IBC would not apply to cases where the bank hasapproached DRT or has adopted the proceeding under the SARFAESIAct and, for this reason, the present proceedings were not maintainablebefore the Adjudicating Authority.D

6.6. The applicant financial creditor filed a rejoinder and refutedall the objections of the corporate debtor while asserting, inter alia, thatthe Corporation Bank declared the account of the corporate debtor asNPA on 08.07.2011 and this fact was mentioned in the demand noticeissued under Section 13(2) of SARFAESI Act, as sent by Indian OverseasEBank on behalf of the consortium of banks.

Initiation order dated 09.08.2018

7. The Adjudicating Authority, in its order dated 09.08.2018, dealtwith the submissions of the parties and, while rejecting the objections ofFcorporate debtor in relation to the frame of application and the correctnessof loan accounts, held that the applicant was entitled to initiate CIRPunder Section 7 of the Code when there was a debt and there wasdefault; and that being a statutory remedy available to the financialcreditor, the corporate debtor cannot question its maintainability only forthe applicant having adopted other proceedings under other enactments.GAs regards the question of debt and default, the NCLT, inter alia,observed and held as under:- “16. The Corporate Debtor contended that demand notice issuedunder the SARFAESI Act, by Indian Overseas Bank does notcontain the date of NPA of the loan of Corporation Bank. The H

petitioner in the rejoinder submitted that the date of NPA ofCorporation Bank was mentioned as 08.07.2011 in the SARFAESINotice. This Bench has gone through the SARFAESI Notice andthe date of NPA of Corporation Bank is mentioned as 08.07.2011at pg. no. 579. Hence this contention of the Corporate Debtorfails. Further the explanation to Section 7(1) of IB Code providesthat a default includes a default in respect of a financial debtowed not only to the Applicant Financial Creditor but also to anyother Financial Creditor of the Corporate Debtor. In view ofadmission of date of NPA of Indian Overseas Bank by thePetitioner in the reply this case squarely falls under the ambit ofexplanation to Section 7(1) of the Code which is a proof of debtand default of debt due to another Financial Creditor. This Petitioncan be admitted based on the reply filed by the Corporate Debtor.”

7.1. The Adjudicating Authority also referred to the decision ofthis Court in the case of Innoventive Industries Ltd. v. ICICI Bank:(2018) 1 SCC 407 as regards the scheme of the Code and therequirements of Section 7 thereof and observed,-

“21…..The rational and reasoning which can be drawn from theabove lines of the citations clearly indicate mainly two aspectsand that is existence of debt and the default which the presentfacts of the case clearly demonstrate. So any amount of argumentthat deals with issues which are not pertinent and trivial to themain issues concerned does not or cannot come in the way ofadjudication of the lis in favour of the Petitioners. The presentfacts of the case are fully and comprehensively covered by thewordings of the above citations.

22. The above discussion clearly shows that there is a debt owedby the Corporate Debtor in favour of Corporation Bank andsubsequently on assignment of the debts by the said bank to thePetitioner, the Corporate Debtor is liable to make the payment tothe Petitioner. Further there is ample proof to come to theconclusion that the Corporate Debtor defaulted in making paymentto Corporation Bank and thereafter to the assignor, the Petitionerherein.

23. This Adjudicating Authority, on perusal of the documents filedby the Creditor, is of the view that the Corporate Debtor defaulted ABC

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Ain repaying the loan availed and also placed the name of theInsolvency Resolution Professional to act as Interim ResolutionProfessional and there being no disciplinary proceedings pendingagainst the proposed resolution professional, therefore theApplication under sub-section (2) of section 7 is taken ascomplete….”B

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7.2. Accordingly, the Adjudicating Authority (NCLT) admitted theapplication for consideration; passed necessary order of moratorium;and appointed the interim resolution professional.

Previous round of proceedings in appeal

C

8. Aggrieved by the aforesaid order dated 09.08.2018, theappellant, erstwhile director of the corporate debtor, approached theNational Company Law Appellate Tribunal in Company Appeal (AT)(Insolvency) No. 549 of 2018 under Section 61 of the Code, challengingadmission of the application made by the respondent No. 2.D

8.1. The appeal so filed by the appellant was considered andsummarily dismissed by the Appellate Tribunal by way of its order dated17.09.2018. The Appellate Tribunal took note of the contention urged onbehalf of the appellant that a petition under Section 19 of the Act of 1993was pending before DRT wherein question had been raised as to whetherEthe amount was payable to the assignee or not. As regards this, theAppellate Tribunal observed that initiation of CIRP cannot be annulledmerely for pendency of a petition under Section 19 of the Act of 1993;and in terms of Section 14 of the Code, all such pending matters cannotproceed during the period of moratorium.

F8.2. It was also contended on behalf of the appellant that therewas no debt payable. After noticing this contention, the Appellate Tribunalcalled upon the appellant to file an affidavit that no amount was receivedor the amount received had already been paid and therefore, there wasno debt or default. In response, learned counsel for the appellantexpressed inability to file any such affidavit for the reason that theGcorporate debtor had indeed availed the loan from the bank/s. Afternoticing this stand of the appellant, the Appellate Tribunal felt disinclinedto interfere with the order passed by the Adjudicating Authority andhence, dismissed the appeal while observing as under:- “2. Learned counsel appearing on behalf of the Appellant submittedHthat a petition under Section 19 of ‘The Recovery of Debts Due to Banks and Financial Institutions Act, 1993’ is pending beforeDebt Recovery Tribunal, Aurangabad. Wherein question has beenraised is whether the amount is payable to the assignee or not.

3. However, the initiation of Corporate Insolvency ResolutionProcess cannot be annulled merely on the ground of pendency ofa petition under Section 19 of ‘The Recovery of Debts Due toBanks and Financial Institutions Act, 1993’. In fact in terms ofSection 14 of I&B Code all such pending proceeding cannotproceed during the period of moratorium.

4. Learned counsel appearing on behalf of the Appellant contendedthat there is no debt payable. However, when we asked the counselto file an addition affidavit signed by the Appellant making specificstatement that they have not received any amount or amountreceived has already been paid and therefore there is no debt orthere is no default, it is informed by the counsel for the Appellantthat such affidavit cannot be filed by the Appellant as the CorporateDebtor had taken loan from the Bank.

5. In view of the aforesaid stand taken by Appellant, we are notinclined to interfere with the impugned order dated 9th August,2018. In absence of any merit, the appeal is dismissed. No costs.”

9. Aggrieved by the aforesaid order dated 17.09.2018, the appellantapproached this Court under Section 62 of the Code in Civil Appeal No.10710 of 2018, which was considered and decided by way of the orderdated 26.02.2019.

9.1. In the order dated 26.02.2019, this Court took note of the factthat in appeal before the Appellate Tribunal, one of the grounds agitatedwas that the claim of the respondent was barred by time for, admittedly,the default was committed on 08.07.2011 whereas the application wasfiled in the month of March, 2018.

9.2. After noticing that the principal issue relating to limitation,though raised by the appellant, was not even decided by the AppellateTribunal; and after referring to the decision in B.K. Educational ServicesPvt. Ltd. v. Paras Gupta & Associates: AIR 2018 SC 5601, whereinit was held that the Limitation Act is applicable to application filed underSection 7 of the Code, this Court remanded the matter to the AppellateTribunal for deciding the issue of limitation with respect to the application A

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Ain question in accordance with law while setting aside the impugnedorder dated 17.09.2018 and while granting liberty to the parties to submitadditional affidavit/s in support of their respective contentions. This Courtobserved and ordered, inter alia, as under:- “Although, we find that the ground articulated in the appeal memoBis vague, but, as the objection regarding limitation goes to the rootof the matter and touches upon the jurisdiction of the NationalCompany Law Tribunal to proceed with the claim of therespondent; and since the recent decision of this Court in B.K.Educational Services Pvt. Ltd. Vs. Paras Gupta & Associates –AIR 2018 SC 5601 has held that the question of limitation isCapplicable even the applications filed under Section 7 of the I. &B. Code, it would be just and necessary to answer the said objectionappropriately, in accordance with law.

Indisputably, neither the National Company Law Tribunal nor theNational Company Law Appellate Tribunal, in the present case,Dhas examined the said contention. Indeed, according to therespondent, the plea of claim being barred by limitation is unstatableand, to buttress this argument, the respondent has relied upon theentries in the books of account of the appellant and other relateddocuments. However, that is a matter which ought to be agitatedEbefore the National Company Law Appellate Tribunal in the firstplace.

Accordingly, we relegate the parties before the National CompanyLaw Appellate Tribunal for fresh consideration of the objectionraised by the appellant that the claim of the respondent is barredFby limitation…..”The impugned order dated 14.05. 2019 by NCLAT afterremand

10. In compliance of the aforesaid order of this Court dated26.02.2019, the Appellate Tribunal (NCLAT) took up the said appeal forGconsideration afresh and proceeded to dismiss the same by way of itsimpugned order dated 14.05.2019 while holding that the application inquestion is not barred by limitation.

10.1. In the introductory paragraphs 1 to 4 of the impugned orderdated 14.05.2019, the Appellate Tribunal referred to the subject matterH

of appeal as also the orders passed in the previous round of proceedings;and in paragraphs 5 and 6, took note of the rival contentions. Thereafter,in paragraphs 7 to 14, the Appellate Tribunal took note of the backgroundfacts including those pertaining to the loans taken by the corporate debtorand creation of securities by way of mortgage of immovable propertiesand hypothecation of stock-in-trade and plant and machinery; theassignment in favour of respondent No. 2 by the lender bank; the loanhaving been shown by the corporate debtor in its annual reports; pendencyof the petition under Section 19 of the Act of 1993 for recovery of thedue amount of loan; and a letter dated 31.07.2018 said to have been senton behalf of the corporate debtor to the respondent No. 2 for one timesettlement[17].

10.1.1. In paragraph 15 of the impugned order, the AppellateTribunal referred to the decision of this Court in the case of B. K.Educational Services (supra) as also Section 238-A of the Code tonotice that law of limitation is applicable to the application under Section7 of the Code. However, in paragraph 16, the Appellate Tribunal madethe observation that ‘for filing the application under Section 7 of theI&B Code, Article 132 of Part 2 (other application) is applicable’;and proceeded to reproduce the said Article 132 of the Limitation Act.[18]Thereafter, in paragraphs 17 to 19, the Appellate Tribunal referred to theframe of Schedule to the Limitation Act and its Divisions, dealing withsuits, appeals and applications respectively. Coming to the crux of thematter, in paragraph 20 of the impugned order, the Appellate Tribunalreferred to Article 137 dealing with ‘OTHER APPLICATIONS’, asoccurring in Part II of Third Division of Schedule to the Limitation Actand reproduced the same while observing that this Article 137 is applicableto the application/s under Section 7 or Section 9 or Section 10 of theCode.

10.2. After the aforementioned observations and overview of thefacts and the law applicable, the Appellate Tribunal, in paragraph 21 of 17 ‘OTS’ for short.

18 Such a reference by the Appellate Tribunal to Article 132 of the Limitation Actappears to be entirely inapt because that relates to the application to High Court forcertificate of fitness to appeal to this Court and provides for the limitation of sixtydays from the date of decree or order. Be that as it may, the observation with extractionof Article 132 appears to be a matter of accidental slip; and we would leave the saidParagraph 16 of the impugned order at that only.

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Athe impugned order, stated the first reason for its conclusion that theapplication in question is not barred by limitation in the manner that theright to apply under Section 7 of the Code accrued to the respondentfinancial creditor only on 01.12.2016 when the Code came into existence.The Appellate Tribunal said, -B“21. The I&B Code has come into existence on 1st December,2016 and thereafter the right to apply accrued to respondent –‘Financial Creditor’ under Section 7 of the I&B code only on 1stDecember, 2016. The application having filed in the year 2018,we hold that the application under Section 7 is not barred bylimitation.”C

10.3. Thereafter, in paragraph 22, the Appellate Tribunal extractedthe relevant passages from the decision in Innoventive Industries(supra) wherein this Court has explained as to how the CIRP is triggeredin the scheme of IBC; and has underscored the requirement of existenceof “default” on the part of the corporate debtor wherefor and wherebyDa financial creditor could maintain an action under Section 7 of the Codeas also the essential elements of the process of such an action, includingthe form and manner of moving the application in conformity with theRules of 2016 and initial enquiry by the Adjudicating Authority on thequestion as to whether a default has occurred. Then, in paragraph 23 ofEthe impugned order, the Appellate Tribunal also took note that inInnoventive Industries, this Court has further held that during suchconsideration by the Adjudicating Authority, the corporate debtor is entitledto point out that default has not occurred in the sense that the “debt” isnot due; and that a debt ‘may not be due if it is not payable in law orin fact’.F

10.4. Thereafter, in paragraph 24, the Appellate Tribunal, withreference to its own decision in Company Appeal (AT) (Insolvency)No. 82 of 2018: Binani Industries Ltd. v. Bank of Baroda and Anr.,observed that the Code does not relate to litigation nor the proceedingswere of suit or money suit; and the period of limitation prescribed in FirstGDivision of the Limitation Act is not applicable to the proceedings underthe Code. However, thereafter in paragraph 25 of the impugned order,the Appellate Tribunal observed that though the law of limitation asprescribed in First Division, Second Division and Part I of Third Divisionof the Schedule to the Limitation Act is not applicable, the corporateHdebtor could take a plea that “debt” is not due, as it is not payable in law being barred by limitation. These paragraphs 24 and 25 of the impugnedorder read as under: - “24. In ‘Binani Industries Ltd. vs. Bank of Baroda & Anr.’ –Company Appeal (AT) (Insolvency) NO. 82 of 2018’ thisAppellate Tribunal held that ‘Insolvency & Bankruptcy Code’ doesnot relate to litigation nor it is a suit or money suit. In thatbackground the period of limitation prescribed in the First Divisionis not applicable through I&B Code proceedings.

25. Though we have held that the law of limitation for filing a suit(First Division) or Appeals (Second Division) or application underPart I (Third division) are not applicable, the ‘Corporate Debtor’can take a plea that ‘debt’ is not due, as it is not payable in lawbeing barred by limitation.”

10.5. After the aforementioned observations, the Appellate Tribunalindicated the question to be examined in the matter in paragraph 26 andproceeded to decide the same in the ensuing paragraphs. In paragraphs27 and 28 of the impugned order, the Appellate Tribunal referred to theundisputed fact that the financial creditor had already filed a petitionunder Section 19 of the Act of 1993 that was pending; and also observedthat the appellant has suppressed the fact that on 31.07.2018, thecorporate debtor approached the financial creditor for one time settlement.After these observations, the Appellate Tribunal referred to the factsthat nine properties of the corporate debtor had been mortgaged withthe financial creditor and that the financial creditor had adopted theproceedings for enforcement of mortgage security and had recoveredpossession pursuant to the order passed by DRT. Having thus referredto the other proceedings and particularly the enforcement of mortgagesecurity, the Appellate Tribunal referred to the limitation period of twelveyears for recovery of possession of mortgaged property as per Article61(b) of the Limitation Act in paragraphs 29 and 30 and concluded thatthe property having been mortgaged, the claim is not barred by limitationas the period of limitation is twelve years with regard to the mortgagedproperty. These considerations, observations and findings led the AppellateTribunal to hold and conclude in paragraph 31 of the impugned orderthat the application under Section 7 of the Code is not barred by limitation.These paragraphs 26 to 31 of the impugned order read as under:- A

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A“26. In the present case, it is to be noticed whether the ‘debt’ isnot payable in law by the ‘Corporate Debtor’ and/or the ‘default’being barred by limitation.

27. We have noticed that immediately on ‘default’, RespondentNo. 2 – ‘Financial Creditor’ has already moved before the DRTBunder Section 19 of the ‘The Recovery of Debts Due to the Banksand Financial Institution Act, 1993’ and O.A. No. 172 of 2017which is still pending. This fact has also been accepted and pleadedby the Appellant.

28. The Appellant has suppressed the fact that recently theC‘Corporate Debtor’ by letter dated 31st July, 2018 approachedRespondent No. 2 (Financial Creditor) for one time settlement.There is a finding that there is a continuous cause of action. Theappellant has not disputed that 9 properties i.e. land and buildinghave been mortgaged by the ‘Corporate Debtor’ with RespondentNo. 2 - ‘Financial Creditor’. Respondent No. 2 also preferred aDcriminal proceeding on 27th June, 2017 as the enforcementmortgage of which possession was taken by 2nd Respondent afterthe order passed by the DRT, Aurangabad.

29. Part V (First Division) of Limitation Act relates to ‘Suits relatingto immovable property’ to recover possession of the propertyEmortgaged and afterwards transferred by the mortgagee for avaluable consideration. The period of limitation is 12 years sincethe transfer becomes known to the plaintiff [Article 61(b)].

30. In view of the aforesaid position of law, the property havingmortgaged, we also hold that the claim is not barred by limitationFas the period of limitation is 12 years with regard to mortgagedproperty and in terms of Section 5 (7) read with Section 5(8) asthe property is mortgaged, Respondent No. 2 also comes withinthe meaning of ‘Financial Creditor’.

31. Therefore, we hold that the application under Section 7 is notGbarred by limitation nor the claim of Respondent No. 2 is barredby limitation. We reject the plea that no ‘debt’ is payable by the‘Corporate Debtor’ in the eyes of law. We find no merit in thisappeal. It is accordingly dismissed. No costs”

11. For what has been noticed hereinabove, it could be reasonablyHdeciphered that the Appellate Tribunal has rejected the plea of bar of

limitation essentially on two major considerations: One, that the right toapply under Section 7 of the Code accrued to the respondent financialcreditor only on 01.12.2016 when the Code came into force[19]; and second,that the period of limitation for recovery of possession of the mortgagedproperty is twelve years[20]. Noticeably, though the Appellate Tribunalhas referred to the pendency of the application under Section 19 of theAct of 1993 as also the fact that corporate debtor had made a prayer forOTS in the month of July, 2018 but, has not recorded any specific findingabout the effect of these factors.

Broad features of rival submissions

12. Assailing the orders so passed by NCLAT and asserting thatthe application made by the respondent No. 2 is barred by limitation, theerstwhile director of the corporate debtor has preferred this appeal whichhas been duly opposed by the applicant financial creditor (respondentNo. 2) as also the IRP for the corporate debtor (respondent No. 1). Thebroad features and substance of the rival submissions could be noticedas infra.

The Appellant

13. The learned senior counsel for the appellant has contendedthat in the impugned order dated 14.05.2019, the NCLAT has failed toapply the law declared by this Court in a series of decisions to the effectthat for an application under Section 7 of the Code, Article 137 ofLimitation Act is applicable and not Article 61 (b); and the limitation forsuch an application is three years from the date of the alleged default.According to the learned senior counsel, neither Article 61 (b) of LimitationAct applies nor even Section 18 thereof and, therefore, on the admitteddate of default as stated by the respondent No. 2, the application inquestion remains hopelessly barred by limitation.

13.1. The learned senior counsel has elaborated on the submissionswith reference to the decision of this Court in the case of B.K.Educational Services (supra) and has contended that therein, it iscategorically held that Article 137 of the Limitation Act applies to theapplication under Section 7 of the Code and hence, the limitation periodis of three years, which is to be counted from the date of default.

19 Paragraph 21 of the impugned order ibid.

20 Paragraphs 29 and 30 of the impugned order ibid.

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A13.2. With reference to the process envisaged by the Code andthe Rules of 2016, where the financial creditor is required to mention thedate of default in the application and also to adduce evidence of default,the learned senior counsel has argued that in the application underconsideration, which was filed on 21.03.2018, the respondent No. 2mentioned the date of default as 08.07.2011 and, for the evidence ofBdefault, only the documents pertaining to the NPA were attached i.e.,until the year 2011. Hence, according to the learned counsel, on theaverments as taken and evidence as adduced, the application so filed bythe respondent No. 2 is clearly barred by limitation and deserves to berejected outright.C

13.3. The learned senior counsel has further referred to thedecision in K. Sashidhar v. Indian Overseas Bank: 2019 SCC OnlineSC 257[21] and has submitted that therein, this Court has reaffirmed theposition that right to sue under the Code accrues on the date when defaultoccurs and if the default had occurred three years prior to the date ofDfiling of the application, the same would not amount to debt due andpayable under the Code. The learned counsel has yet further submittedthat in Civil Appeal No. 11020 of 2018: Vashdeo R. Bhojwani v.Abhyudaya Co-operative Bank Ltd. & Anr.[22], where default hadoccurred in the year 2001 when the Recovery Certificate was issuedand the NCLT and NCLAT held that the claim was not time-barred forEthe cause of action being a continuing one, this Court has held that therewas no doubt that the claim was due and payable, but the same wasbarred by limitation as applicable under IBC. Proceeding further, thelearned senior counsel has referred to the decision rendered by a three-Judge Bench of this Court in Civil Appeal No. 4952 of 2019: GauravFHargovindbhai Dave v. Asset Reconstruction Company (India)Ltd. & Anr.[23]to submit that therein, it is specifically held that theapplication under Section 7 of IBC would fall within the purview ofArticle 137 of the Limitation Act and the time of three years begins torun from the date of default and no new life would be given to the time-barred debts. The learned senior counsel has also referred to the orderGof NCLAT dated 02.05.2019 in Company Appeal (AT)(Insolvency) No.655 of 2018, which was in challenge before this Court in GauravHargovindbhai Dave (supra), to point out that NCLAT had taken the21 Now reported in (2019) 12 SCC 15022 Now reported in (2019) 9 SCC 158H23 Now reported in (2019) 10 SCC 572

application under Section 7 of IBC to be within limitation also becauseof OTS offers made by the corporate debtor to the financial creditor andeven this proposition did not meet with approval of this Court. The learnedcounsel would submit that in Vashdeo R.Bhojwani (supra), this Courthas taken the date of default to be that of issuance of Recovery Certificateand in Gaurav Hargovindbai Dave (supra), this Court has taken thedate of NPA to be the date of default; and this Court has construed thedate of default to be the one when the debt became due and payablestrictly as per Section 3(12) of IBC whereunder, default means ‘non-payment of debt when whole or any part of instalment of the amountof debt has become due and payable and is not paid by the debtoror the corporate debtor, as the case may be.’

13.4. The learned senior counsel has further submitted that thereasonings adopted by NCLAT stand thoroughly disapproved by thisCourt in the decisions above-referred as also that in Civil Appeal No.7673 of 2019: Sagar Sharma & Anr. v. Phoenix Arc Pvt. Ltd. &Anr.[24]and, therefore, the impugned order cannot be sustained from anyangle.

13.5. The learned senior counsel has yet further referred to thethree-Judge Bench decision in the case of Jignesh Shah and Anr. v.Union of India and Anr. : 2019 SCC Online 1254[25] and has submittedthat therein too, this Court has analysed in detail the applicability of theLimitation Act to the applications of winding up being transferred toNCLT and has held that enforcement of IBC in 2016 will not give a newlife to the time-barred debts; and if the application is filed beyond threeyears from the date of default, then the same will be barred by time.

13.6. The learned senior counsel has argued that the debt shownin the balance sheet does not revive the limitation period of three yearsas applicable to the IBC under Article 137 of the Limitation Act for thereasons that the debt as shown in the balance sheet is not covered bySection 18 of the Limitation Act; and even otherwise, Section 18 of theLimitation Act cannot revive the “default” relevant for IBC and couldonly revive limitation with respect to the cause of action. The learnedsenior counsel has emphasised on the submissions that Section 18 of theLimitation Act could revive limitation in some cases but not for everyremedy which is separate and distinct; and when limitation period of 24 Now reported in (2019) 10 SCC 353

25 Now reported in (2019) 10 SCC 750

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Athree years under Article 137 of the Limitation Act, in relation to theapplication under Section 7 of the Code, starts from the date of default,acknowledgment of the debt in the balance sheet will not give any freshdate of default because default occurs only once and cannot be continuing.The learned counsel has also submitted that the NCLAT has wronglyrelied on the alleged proposal for OTS which was never filed beforeBNCLT and also was denied by the appellant herein; and in any case, theproposal for OTS, if at all made on 31.07.2018, cannot revive the date ofdefault as per declaration of NPA on 08.07.2011 nor does it attract Section18 of the Limitation Act.

13.7. As regards relevant considerations and approach, the learnedCsenior counsel for the appellant has submitted, with reference toparagraph 64 of the decision in Swiss Ribbons Private Limited andAnr. v. Union of India and Ors.: (2019) 4 SCC 17, that the legislativepolicy has moved from “cause of action” to determination of “default”and in the present case, default having occurred when the account becameDNPA as on 08.07.2011, the application remains barred by limitation.

Respondent No. 2

14. Per contra, the learned senior counsel appearing for thefinancial creditor (respondent No. 2) has contended that this appeal isdevoid of substance and is liable to be dismissed on merits as also onEconduct of the appellant.

14.1. The learned senior counsel would maintain that the debt ofthe corporate debtor, payable to the respondent No. 2, has neither beendisputed nor denied by the appellant; rather it is stated in ground P in thememo of appeal (page 36 of paper-book) that the corporate debtor isFand has always been willing to settle the amount of outstanding loan inone time settlement with the respondent No. 2. The learned counselwould submit that the late attempt on the part of the appellant to disputethe OTS letter issued by the respondent No. 1 is baseless and fallaciousbecause such a contention has been raised for the first time in this secondGround of appeal in this Court; and that the appellant is rather guilty oftaking false pleadings and of perjury in his attempts to mislead.

14.2. While refuting the submissions made on behalf of theappellant, it has been strenuously argued by the learned senior counselfor the respondent No. 2 that the application under Section 7 of theCode is not barred by limitation only because of initial date of defaultH

being mentioned therein as 08.07.2011. The learned counsel would submitthat the contentions on behalf of the appellant are unsustainable sincethe debt in question had been legally and unequivocally admitted to bedue and payable in writing by the respondent No. 1 all throughout fromthe year 2011 until 2017 in its balance sheets filed along with annualreturns before the Registrar of Companies; and the debt had been shownas the loan amount outstanding to Corporation Bank, who had assignedthe same to the respondent No. 2.

14.3. While heavily relying on the observations in Jignesh Shah(supra), learned senior counsel has contended that as per the law declaredby this Court, the provisions of Section 18 of the Limitation Act certainlyextend the period of limitation under the Code on any acknowledgmentof debt by the corporate debtor. The learned counsel has referred to theprovisions of the Companies Act, 2013[26], particularly Section 95 thereof,as also to the observations of this Court in M/s. Mahabir Cold Storagev. CIT, Patna: 1991 Supp (1) SCC 402 to submit that the registers ofa company are of prima facie evidence; and the balance sheet disclosingloans and borrowings and forming part of annual returns, indeed constitutethe admission and acknowledgment of the corporate debtor of itsindebtedness. Therefore, according to the learned counsel, the loanamount acknowledged to be due and payable by the corporate debtor inthe balance sheets and annual reports, continuously from the year 2011and until the year 2017, becomes an admitted fact of evidence and thereby,the period of limitation is extended by dint of applicability of Section 18of the Limitation Act.

14.4. The learned senior counsel has re-emphasised on thesubmissions that the suggestions of the appellant, that no extension oflimitation period under Section 18 of the Limitation Act is permissible inthe Code because date of default is sacrosanct and only three yearsperiod from that date is permissible, remain untenable in law. The learnedcounsel has contended that at the time of filing such application by therespondent No. 2, there was no provision in the Code importing anydefined period of limitation and neither there was any mandatory legalrequirement of stating in the application format as to how the claim waswithin limitation nor there was any statutory requirement to furnish anyspecific evidence thereof and therefore, the Section 7 application as 26 Hereinafter also referred to as ‘the Companies Act’.

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Aframed and filed by respondent No. 2 was well within the period oflimitation.

14.5. As regards the requisite approach in applying the law oflimitation to the application under Section 7 of the Code, the learnedsenior counsel has strenuously argued that the amendment applying theBprovisions of the Limitation Act to the Code came into force with effectfrom 06.06.2018 but only after filing of the application by respondentNo. 2; and testing a post facto applicable statutory provision ofretrospective nature in a watertight stringent manner would result in afatal flaw in equity and the same may also prejudice scores of legalrecourse by many other banks and financial institutions currently in Courts/CTribunals on mere technicality that was unforeseen and unconceived in past and hence, the documents making out a case for extension oflimitation period could not be filed. Other way round, according to thelearned counsel, the unrestrained applicability of Section 238-A of theCode in an anomalous manner suggested on behalf of the appellant wouldDcompel all the financial institutions to immediately proceed and file the application under Section 7 before the expiry of three years exactlyfrom the date of default, in spite of the fact that any borrower, in order toovercome its financial constraints to repay might be ready and willing tocomply with the requirements of Section 18 of the Limitation Act forextension of period of limitation. The learned counsel has relied on theEdecision of this Court in N.Balakrishnan v. Krishnamurthy : (1998)7 SCC 123 to submit that the rules of limitation are not meant to destroythe rights of the parties.

14.6. The learned senior counsel has, therefore, submitted thatthe application filed by respondent No. 2 under Section 7 of the Code asFfinancial creditor is within the period of limitation as prescribed and asextended legally by application of the relevant provisions of the LimitationAct. Thus, according to the learned counsel, the application has rightlybeen admitted by NCLT and the present appeal deserves to be dismissed.

Respondent No. 1G

15. The learned counsel appearing for the IRP (respondent No.1) has more or less argued on the same lines and has submitted that theapplication in question is well within the period of limitation when examinedin the light of the applicable provisions of the Code and the LimitationAct.H

15.1. According to the learned counsel, the application filed bythe respondent No. 2 remains within limitation for the reasons: (a) thatthe liability of loan is long standing and same is recorded in the balancesheets of corporate debtor for the Financial Years 2011-12, 2012-13,2013-14, 2014-15, 2015-16 and 2016-17; (b) that by way of letter dated31.07.2018, request for OTS was made on behalf of the corporate debtor;and (c) OA No. 172/2013 was filed before DRT well within the stipulatedtime period and the same is still pending. It has been contended that inview of these indisputable facts, the claim of the financial creditor cannotbe said to be dead or stale claim and hence, is not barred by limitation,particularly when the financial creditor has been availing of another civilremedy available to it and had filed the application under Section 19 ofthe Act of 1993 well within limitation.

15.2. The learned counsel has further contended that the impugnedorder of NCLAT is correct on facts and is in consonance with the intentand spirit of law laid down by this Court in B.K.Educational Services(supra) that the claim of the creditor should not be a dead or a staleclaim. The learned counsel has further contended that mere date ofdefault or date of classification of an account as NPA does not put a fullstop on ‘further cause of action’ or ‘continuing cause of action’ availableto the financial creditor. The learned counsel would submit that on thesettled principle of law, the interpretation of statute should always be infurtherance to its objective and to give effect to the intent of legislature;and if, for the sake of arguments, the contention of the appellant isaccepted that an application under Section 7 of IBC could be filed onlywithin three years from the date of NPA, it would frustrate the objectiveof IBC to restructure the stressed assets and ensure maximisation ofthe value of stressed assets.

15.3. The learned counsel has again relied on Section 18 of theLimitation Act and the aforesaid decisions in Jignesh Shah andMahaveer Cold Storage to submit that the contention of the appellantthat cause of action arose in 2011 and right to sue started ticking in thesaid year is baseless, as the corporate debtor had continuously admittedits liability in its audited balance sheets until the year 2017 and furtheradmitted its liability with an offer for OTS. Therefore, according to thelearned counsel, the contention that the debt is barred by limitation cannotbe taken by the corporate debtor in the given facts and circumstancesbesides that such a contention is contrary to the undisputed facts andadmission of liability.

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A15.4. The learned counsel for the respondent No. 1 has alsoattempted to refer to the proceedings already undertaken in this matterpursuant to the order of admission by NCLT, including the meetings of,and resolutions by, CoC; and consequent moving of application by IRPbefore NCLT for liquidation of the corporate debtor before passing ofthe interim order in this appeal.B

A

16. In distillation of what has been noticed hereinabove, it isapparent that while not disputing the basics on the applicability of law oflimitation to the application in question, the main plank of submissions ofthe learned counsel for respondents has been that the applicability ofSection 18 of the Limitation Act, providing for extension of the period ofClimitation upon making of acknowledgment by the party against whom aright is claimed, is not taken away and, for such acknowledgments (ofliability) having been consistently and continuously made in the balancesheets and annual reports by the corporate debtor as also in its offer forOTS, the fresh period of limitation would be available from the date ofDevery such acknowledgment. Hence, with heavy reliance on the principlesrelating to “acknowledgment” under Section 18 of the Limitation Act,the learned counsel for the respondents would assert that the applicationin question is not barred by limitation. On the other hand, the gravamenof submissions on behalf of the appellant has been that looking to thescheme of the Code and the decisions of this Court, the application inEquestion is governed by Article 137 of the Limitation Act; that threeyears’ time period prescribed therein commences from the date of default;and that acknowledgment of debt in the balance sheet or annual reportdoes not give any fresh period of limitation because default occurs onlyonce and does not furnish a continuing right to apply.F

16.1. Apart from the aforesaid, as noticed, the Appellate Tribunalhas concluded in favour of the respondents for different reasons viz.,that the right to apply under Section 7 of the Code accrued only on01.12.2016 when the Code came into force and hence, the applicationfiled by the financial creditor in the year 2018 is not barred by limitation;Gand that the period of limitation is twelve years for recovery of possessionof the mortgaged property and, therefore, the claim is not barred bylimitation.

The relevant provisions of the Code and the Limitation Act

17. For determination of the core issue as to whether the applicationHmade by respondent No. 2 before NCLAT under Section 7 of the Code

is within limitation and for dealing with the submissions made by therespective learned counsel as also the reasonings adopted by the AppellateTribunal, at the first it would be appropriate to take note of the relevantstatutory provisions in the Insolvency and Bankruptcy Code, 2016 andthe Limitation Act, 1963.

17.1. The expressions generally used in the Insolvency andBankruptcy Code, 2016 are defined in Section 3 thereof. The relevantdefinitions occurring in Section 3 of the Code are as under: - “3. Definitions. —In this Code, unless the context otherwiserequires,—************

(6) “claim” means—

(a) a right to payment, whether or not such right is reduced tojudgment, fixed, disputed, undisputed, legal, equitable, secured orunsecured; (b) right to remedy for breach of contract under any law for thetime being in force, if such breach gives rise to a right to payment,whether or not such right is reduced to judgment, fixed, matured,unmatured, disputed, undisputed, secured or unsecured;

(8) “corporate debtor” means a corporate person who owes adebt to any person; ************

(10) : “creditor” means any person to whom a debt is owed andincludes a financial creditor, an operational creditor, a securedcreditor, an unsecured creditor and a decree-holder;

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

(12) “default” means non-payment of debt when whole or anypart or instalment of the amount of debt has become due andpayable and is not [paid][27] by the debtor or the corporate debtor,as the case may be; ****

********

27 The expression in parenthesis was substituted for “repaid” by Amendment Act No.

26 of 2018 with retrospective effect from 06.06.2018.

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[2020] 13 S.C.R.

A(30): “secured creditor” means a creditor in favour of whomsecurity interest is created;************”

17.2. Part II of the Code deals with insolvency resolution andliquidation of corporate persons and the extent of application of this PartBII is specified in Section 4 that reads as under:- “4. Application of this Part. - (1) This Part shall apply to mattersrelating to the insolvency and liquidation of corporate debtors wherethe minimum amount of the default is one lakh rupees:

CProvided that the Central Government may, by notification, specifythe minimum amount of default of higher value which shall not bemore than one crore rupees.”

17.3. The expressions employed in Part II of the Code are definedin Section 5 thereof. The relevant definitions are as under:- D“5. Definitions.—In this Part, unless the context otherwiserequires,—************(6) “dispute” includes a suit or arbitration proceedings relatingE(a) the existence of the amount of debt; (b) the quality of goods or service; or

(c) the breach of a representation or warranty; F(7): “financial creditor” means any person to whom a financialdebt is owed and includes a person to whom such debt has beenlegally assigned or transferred to;************”

17.4. The provisions relating to initiation of CIRP, with which weGare primarily concerned in this matter, are contained in Section 7 of theCode and read as under:- “7. Initiation of corporate insolvency resolution processby financial creditor.— (1) A financial creditor either by itselfor jointly with [other financial creditors, or any other person onHbehalf of the financial creditor, as may be notified by the Central Government,][28] may file an application for initiating corporateinsolvency resolution process against a corporate debtor beforethe Adjudicating Authority when a default has occurred.

Explanation.— For the purposes of this sub-section, a defaultincludes a default in respect of a financial debt owed not only tothe applicant financial creditor but to any other financial creditorof the corporate debtor.

(2) The financial creditor shall make an application under sub-section (1) in such form and manner and accompanied with suchfee as may be prescribed.

(3) The financial creditor shall, along with the application furnish—

(a) record of the default recorded with the information utility orsuch other record or evidence of default as may be specified; (b) the name of the resolution professional proposed to act as aninterim resolution professional; and

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

(4) The Adjudicating Authority shall, within fourteen days of thereceipt of the application under sub-section (2), ascertain theexistence of a default from the records of an information utility oron the basis of other evidence furnished by the financial creditorunder sub-section (3).

(5) Where the Adjudicating Authority is satisfied that—

(a) a default has occurred and the application under sub-section(2) is complete, and there is no disciplinary proceedings pendingagainst the proposed resolution professional, it may, by order, admitsuch application; or

(b) default has not occurred or the application under sub-section(2) is incomplete or any disciplinary proceeding is pending againstthe proposed resolution professional, it may, by order, reject suchapplication:

Provided that the Adjudicating Authority shall, before rejectingthe application under clause (b) of sub-section (5), give a notice 28 The expressions in parenthesis were substituted for “other financial creditors” byAmendment Act No. 26 of 2018 with retrospec tive effect from 06.06.2018.

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to the applicant to rectify the defect in his application within sevendays of receipt of such notice from the Adjudicating Authority.

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

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(7) The Adjudicating Authority shall communicate—

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

17.5. Section 238-A, inserted in the Code by way AmendmentAct No. 26 of 2018, is deemed to have come into effect from 06.06.2018.This Section 238-A, being directly relevant for the present purpose, couldDalso be usefully reproduced as under:- “238-A. Limitation. - The provisions of the Limitation Act, 1963shall, as far as may be, apply to the proceedings or appeals beforethe Adjudicating Authority, the National Company Law AppellateTribunal, the Debt Recovery Tribunal or the Debt Recovery”Appellate Tribunal, as the case may be.E

17.6. Section 18 of the Limitation Act, providing for the extensionof period of limitation on acknowledgment of the liability, which is stronglyrelied upon by the respondents, reads as under:- “18. Effect of acknowledgment in writing. —F

(1) Where, before the expiration of the prescribed period for asuit or application in respect of any property or right, anacknowledgment of liability in respect of such property or righthas been made in writing signed by the party against whom suchproperty or right is claimed, or by any person through whom heGderives his title or liability, a fresh period of limitation shall becomputed from the time when the acknowledgment was so signed.

(2) Where the writing containing the acknowledgment is undated,oral evidence may be given of the time when it was signed; butsubject to the provisions of the Indian Evidence Act, 1872 (1 ofH1872), oral evidence of its contents shall not be received.

Explanation.—For the purposes of this section,—

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(a) an acknowledgment may be sufficient though it omits tospecify the exact nature of the property or right, or aversthat the time for payment, delivery, performance orenjoyment has not yet come or is accompanied by arefusal to pay, deliver, perform or permit to enjoy, or isBcoupled with a claim to set-off, or is addressed to a personother than a person entitled to the property or right; (b)the word “signed” means signed either personally or byan agent duly authorised in this behalf; and C

(c) an application for the execution of a decree or ordershall not be deemed to be an application in respect ofany property or right.”

17.7. As regards the period of limitation for the application inquestion, Article 137, as contained in Part II of Third Division of theSchedule to the Limitation Act (relating to the applications not otherwiseprovided for), shall have bearing in the matter and may be taken note ofas under[29]

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29It may be usefully observed that the Appellate Tribunal has referred to Article 61(b)of the Limitation Act that relates to suits on mortgages. As shall be noticed hereafterlater, such a reference does not fit in the issue at hand from any angle. However, we mayextract Articles 61(b) and 62 of the Limitation, just for the sake of reference, as under:- E

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BThe relevant basics of the Insolvency and BankruptcyCode, 2016

18. Now, a brief insight into the expositions of this Court on thereasons, purport, meaning and effect of the provisions of IBC and changesCbrought about by it to the then existing law, particularly those havingbearing on the questions at hand, shall be useful.

18.1. As noticed from Preamble, the Code came to be enacted toconsolidate and amend the laws relating to reorganisation and insolvencyresolution of corporate persons and even of partnership firms andDindividuals in a time bound manner; the objectives, inter alia, being formaximisation of value of assets of such persons and balance of interestof all the stakeholders.[30]

18.2. One of the earliest decisions, wherein this Court dealt withthe provisions of IBC in sufficient detail while explaining the raisonEd’être for this enactment and a paradigm shift in law, had been in thecase of Innoventive Industries (supra) that was decided on 31.08.2017.Therein, this Court, inter alia, pointed out that ‘one of the importantobjectives of the Code is to bring the insolvency law in India undera single unified umbrella with the object of speeding up of theFinsolvency process’.

18.2.1. In the case of Innoventive Industries, this Court wasessentially concerned with the question as to whether the proceedingsunder IBC could be stalled where there was a moratorium to the companyconcerned under the Maharashtra Relief Undertakings (SpecialProvisions) Act, 1958. Amongst other aspects, this Court ruled, withGreference to the non obstante clause contained in Section 238 of theCode that the same being of Parliamentary enactment, would prevailover the limited non obstante clause of the State enactment; and thus, 30 As observed by this Court in Civil Appeal Nos. 8512-8527 of 2019 etc.: Anuj JainHv. Axis Bank Limited and Ors., decided on 26.02.2020.

the Maharashtra Act cannot stand in the way of Corporate InsolvencyResolution Process under the Code[31]. During the course of an extensiveexamination of the relevant provisions, this Court also analysed the schemeof Corporate Insolvency Resolution Process under the Code and, inrelation to the initiation of such CIRP by the financial creditor, expositedas follows: -

“27. The scheme of the Code is to ensure that when a defaulttakes place, in the sense that a debt becomes due and isnot paid, the insolvency resolution process begins. Defaultis defined in Section 3(12) in very wide terms as meaning non-payment of a debt once it becomes due and payable, whichincludes non-payment of even part thereof or an instalment amount.For the meaning of “debt”, we have to go to Section 3(11), whichin turn tells us that a debt means a liability of obligation in respectof a “claim” and for the meaning of “claim”, we have to go backto Section 3(6) which defines “claim” to mean a right to paymenteven if it is disputed. The Code gets triggered the momentdefault is of rupees one lakh or more (Section 4). Thecorporate insolvency resolution process may be triggered by thecorporate debtor itself or a financial creditor or operational creditor.A distinction is made by the Code between debts owed to financialcreditors and operational creditors. A financial creditor has beendefined under Section 5(7) as a person to whom a financial debtis owed and a financial debt is defined in Section 5(8) to mean adebt which is disbursed against consideration for the time valueof money. As opposed to this, an operational creditor means aperson to whom an operational debt is owed and an operationaldebt under Section 5(21) means a claim in respect of provision ofgoods or services.

28. When it comes to a financial creditor triggering the process,Section 7 becomes relevant. Under the Explanation to Section7(1), a default is in respect of a financial debt owed to any financialcreditor of the corporate debtor — it need not be a debt owed to 31Section 238 of the Code reads as under: -

238. Provisions of this Code to override other laws.—The provisions of this Codeshall have effect, notwithstanding anything inconsistent therewith contained in anyother law for the time being in force or any instrument having effect by virtue of anysuch law.”

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Athe applicant financial creditor. Under Section 7(2), an applicationis to be made under sub-section (1) in such form and manner as isprescribed, which takes us to the Insolvency and Bankruptcy(Application to Adjudicating Authority) Rules, 2016. Under Rule4, the application is made by a financial creditor in Form 1accompanied by documents and records required therein. Form 1Bis a detailed form in 5 parts, which requires particulars of theapplicant in Part I, particulars of the corporate debtor in Part II,particulars of the proposed interim resolution professional in PartIII, particulars of the financial debt in Part IV and documents,records and evidence of default in Part V. Under Rule 4(3), theCapplicant is to dispatch a copy of the application filed with theadjudicating authority by registered post or speed post to theregistered office of the corporate debtor. The speed, within whichthe adjudicating authority is to ascertain the existence of a defaultfrom the records of the information utility or on the basis of evidencefurnished by the financial creditor, is important. This it must doDwithin 14 days of the receipt of the application. It is at the stageof Section 7(5), where the adjudicating authority is to besatisfied that a default has occurred, that the corporatedebtor is entitled to point out that a default has not occurredin the sense that the “debt”, which may also include aEdisputed claim, is not due. A debt may not be due if it is notpayable in law or in fact. The moment the adjudicating authorityis satisfied that a default has occurred, the application must beadmitted unless it is incomplete, in which case it may give noticeto the applicant to rectify the defect within 7 days of receipt of anotice from the adjudicating authority. Under sub-section (7), theFadjudicating authority shall then communicate the order passed tothe financial creditor and corporate debtor within 7 days ofadmission or rejection of such application, as the case may be.”

G18.3. The other decision in which this Court again traversed throughthe historical background and scheme of the Code had been in the wakeof challenge to the constitutional validity of various of its provisions inthe case of Swiss Ribbons (supra), decided on 25.01.2019.

18.3.1. In Swiss Ribbons, while upholding the constitutional validityHof IBC, this Court took note, inter alia, of the pre-existing state of law

as also the objects and reasons for enactment of the Code; and whileobserving that the focus of the Code was to ensure revival andcontinuation of the corporate debtor, where liquidation is to be availed ofonly as a last resort, this Court pointed out that on its scheme andframework, the Code was a beneficial legislation to put the corporatedebtor on its feet, and not a mere recovery legislation for the creditors.This Court said, -

“27. As is discernible, the Preamble gives an insight into what issought to be achieved by the Code. The Code is first and foremost,a Code for reorganisation and insolvency resolution of corporatedebtors. Unless such reorganisation is effected in a time-boundmanner, the value of the assets of such persons will deplete.Therefore, maximisation of value of the assets of such persons sothat they are efficiently run as going concerns is another veryimportant objective of the Code. This, in turn, will promoteentrepreneurship as the persons in management of the corporatedebtor are removed and replaced by entrepreneurs. When,therefore, a resolution plan takes off and the corporate debtor isbrought back into the economic mainstream, it is able to repay itsdebts, which, in turn, enhances the viability of credit in the handsof banks and financial institutions. Above all, ultimately, theinterests of all stakeholders are looked after as the corporate debtoritself becomes a beneficiary of the resolution scheme—workersare paid, the creditors in the long run will be repaid in full, andshareholders/investors are able to maximise their investment.Timely resolution of a corporate debtor who is in the red, by aneffective legal framework, would go a long way to support thedevelopment of credit markets. Since more investment can bemade with funds that have come back into the economy, businessthen eases up, which leads, overall, to higher economic growthand development of the Indian economy. What is interesting tonote is that the Preamble does not, in any manner, refer toliquidation, which is only availed of as a last resort if there iseither no resolution plan or the resolution plans submitted are notup to the mark. Even in liquidation, the liquidator can sell thebusiness of the corporate debtor as a going concern. (SeeArcelorMittal[32] at para 83, fn 3).

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A28. It can thus be seen that the primary focus of thelegislation is to ensure revival and continuation of thecorporate debtor by protecting the corporate debtor fromits own management and from a corporate death byliquidation. The Code is thus a beneficial legislation whichputs the corporate debtor back on its feet, not being a mereBrecovery legislation for creditors. The interests of thecorporate debtor have, therefore, been bifurcated and separatedfrom that of its promoters/those who are in management. Thus,the resolution process is not adversarial to the corporatedebtor but, in fact, protective of its interests. The moratoriumCimposed by Section 14 is in the interest of the corporate debtoritself, thereby preserving the assets of the corporate debtor duringthe resolution process. The timelines within which the resolutionprocess is to take place again protects the corporate debtor’sassets from further dilution, and also protects all its creditors andworkers by seeing that the resolution process goes through asDfast as possible so that another management can, through itsentrepreneurial skills, resuscitate the corporate debtor to achieveall these ends.”

E18.3.2. In Swiss Ribbons, this Court again explained theconnotations as also contours of the provisions relating to initiation ofCIRP by the financial creditor in the following passage:-

“64. The trigger for a financial creditor’s application is non-payment of dues when they arise under loan agreements. It is forFthis reason that Section 433(e) of the Companies Act, 1956 hasbeen repealed by the Code and a change in approach has beenbrought about. Legislative policy now is to move away fromthe concept of “inability to pay debts” to “determination ofdefault”. The said shift enables the financial creditor to prove,based upon solid documentary evidence, that there was an obligationGto pay the debt and that the debtor has failed in such obligation….”

19. The expositions abovementioned make it clear that theInsolvency and Bankruptcy Code, 2016 has been enacted to consolidateand amend the laws relating to reorganisation and insolvency resolutionH

of corporate persons and other entrepreneurs in a time bound manner soas to ensure maximisation of value of assets of such persons and tobalance the interest of all the stakeholders. As regards corporate debtor,the primary focus of the Code is to ensure its revival and continuation byprotecting it from its own management and, as far as feasible, to save itfrom liquidation. As tersely put by this Court in Swiss Ribbons (supra),the Code is thus a beneficial legislation which puts the corporatedebtor back on its feet, not being a mere recovery legislation forcreditors.

19.1. When the Corporate Insolvency Resolution Process isunderstood on the anvil of the aforementioned fundamentals on the spiritand intent of IBC, it is also evident that such a process is not intended tobe adversarial to the corporate debtor but is essentially to protect itsinterests.

19.2. In relation to a financial creditor, the trigger for CIRP isdefault by the corporate debtor of rupees one lakh or more against thedebt/s. When seeking initiation of CIRP qua a corporate debtor, thefinancial creditor is required to make the application in conformity withthe requirements of Section 7 of the Code while divulging the necessaryinformation and evidence, as required by the Rules of 2016. Aftercompletion of all other requirements, for admitting such an application ofthe financial creditor, the Adjudicating Authority has to be satisfied, asper sub-section (5) of Section 7 of the Code, that “default” has occurredand, in this process of consideration by the Adjudicating Authority, thecorporate debtor is entitled to point out that default has not occurred inthe sense that the “debt”, which may also include a disputed claim, is notdue. A debt may not be due if it is not payable in law or in fact. Asobserved by this Court, the legislative policy now is to move awayfrom the concept of “inability to pay debts” to “determination ofdefault”.

Operation of law of limitation over IBC proceedings

20. Having taken note of the rudiments that the Code is a beneficiallegislation intended to put the corporate debtor on its feet and it is not amere money recovery legislation for the creditors; and having also noticedthat CIRP is not intended to be adversarial to the corporate debtor but isessentially to protect its interests and that CIRP has its genesis in defaulton the part of the corporate debtor, we may now examine the operationof law of limitation over the proceedings under the Code.

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A21. Section 238-A, providing that the provisions of the LimitationAct, 1963 shall, as far as may be, apply to the proceedings or appeals,inter alia, before the Adjudicating Authority (NCLT) or the AppellateTribunal (NCLAT), was not available in the Code when this Courtdelivered the decision in Innoventive Industries (supra) on 31.08.2017.However, this Court explained the scheme of the Code and nuances ofBCIRP by the financial creditor under Section 7, particularly as to whenthe process of insolvency resolution begins, the trigger moment beingthe default of rupees one lakh or more; and the requirement on theAdjudicating Authority to reach to the satisfaction that the required defaulthas occurred. It appears that even when the applicable principles inCrelation to CIRP by the financial creditor were explained by this Court inInnoventive Industries (supra), the question of applicability of theLimitation Act to the Code remained a matter of debate in variousdecisions of NCLT and NCLAT. Such a debate and the doubts generatedthereby were dealt with by the Insolvency Law Committee who, in itsreport made in the month of March, 2018, recommended for introductionDof the requisite provision in the Code so as to leave no room of doubtthat the Limitation Act indeed applies to the proceedings under the Code.This ultimately led to the insertion of the said Section 238-A into theCode with retrospective effect from 06.06.2018. However, the validityof this Section 238-A was also questioned before this Court and thisEculminated into the elaborate decision of this Court in the case of B.K.Educational Services (supra) that was rendered on 11.10.2018.

22. In B.K. Educational Services (supra), while upholding thevalidity of Section 238-A of the Code, this Court took note of the saidreport of the Insolvency Law Committee and observed as under:-F

“11. Having heard the learned counsel for both sides, it is importantto first set out the reason for the introduction of Section 238-Ainto the Code. This is to be found in the Report of the InsolvencyLaw Committee of March 2018, as follows:

“28. APPLICATION OF LIMITATION ACT, 1963G

28.1. The question of applicability of the Limitation Act, 1963 (theLimitation Act) to the Code has been deliberated upon in severaljudgments of NCLT and NCLAT. The existing jurisprudence onthis subject indicates that if a law is a complete code, then anexpress or necessary exclusion of the Limitation Act should be H

respected. In light of the confusion in this regard, the Committeedeliberated on the issue and unanimously agreed that theintent of the Code could not have been to give a new lease oflife to debts which are time-barred. It is settled law that when adebt is barred by time, the right to a remedy is time-barred. Thisrequires being read with the definition of “debt” and “claim” inthe Code. Further, debts in winding-up proceedings cannot be time-barred, and there appears to be no rationale to exclude theextension 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 the LimitationAct to file for CIRP, the trigger for which is default on a debtabove INR one lakh. The purpose of the law of limitation is ‘toprevent disturbance or deprivation of what may have beenacquired in equity and justice by long enjoyment or what mayhave been lost by a party’s own inaction, negligence orlaches’. Though the Code is not a debt recovery law, the triggerbeing “default in payment of debt” renders the exclusion of thelaw of limitation counter-intuitive. Second, it re-opens the right ofclaimants (pursuant to issuance of a public notice) to file time-barred claims with IRP/RP, which may potentially be a part of theresolution plan. Such a resolution plan restructuring time-barreddebts and claims may not be in compliance with the existing lawsfor the time being in force as per Section 30(4) of the Code.

28.3. Given that the intent was not to package the Code as afresh opportunity for creditors and claimants who did notexercise their remedy under existing laws within the prescribedlimitation period, the Committee thought it fit to insert aspecific section applying the Limitation Act to the Code. Therelevant entry under the Limitation Act may be on a case-to-casebasis. It was further noted that the Limitation Act may not applyto applications of corporate applicants, as these are initiated bythe applicant for its own debts for the purpose of CIRP and arenot in the form of a creditor’s remedy.”

(emphasis in original and supplied)

12. The Report of the Committee would indicate that it has appliedits mind to judgments of NCLT and NCLAT. It has also applied AB

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its mind to the aspect that the law is a complete Code andthe fact that the intention of such a Code could not havebeen to give a new lease of life to debts which are time-barred.”

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22.1. Further, in B.K. Educational Services, this Court extensivelydealt with the issues as to whether the Code being exhaustive in nature,would result in overriding the Limitation Act and as to whether the objectof the legislature was to apply the limitation prescribed under the Coderetrospectively. This Court, relying on a plethora of judgments and theCsaid Insolvency Law Committee Report of March, 2018 stated the viewsin no uncertain terms that,- “34……. the legislature did not contemplate enabling a creditorwho has allowed the period of limitation to set in to allow suchdelayed claims through the mechanism of the Code. The Codecannot be triggered in the year 2017 for a debt which was time-barred, say, in 1990, as that would lead to the absurd and extremeconsequence of the Code being triggered by a stale or dead claim,leading to the drastic consequence of instant removal of the presentBoard of Directors of the corporate debtor permanently, and whichmay ultimately lead to liquidation and, therefore, corporate death.This being the case, the expression “debt due” in the definitionSections of the Code would obviously only refer to debts that are“due and payable” in law, i.e., the debts that are not time-barred.That this is the case has already been held by us in the InnoventiveIndustries Ltd. (supra)…..

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

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42. It is thus clear that since the Limitation Act is applicable toapplications filed under Sections 7 and 9 of the Code from theinception of the Code, Article 137 of the Limitation Act getsattracted. “The right to sue”, therefore, accrues when 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,save and except in those cases where, in the facts of thecase, Section 5 of the Limitation Act may be applied tocondone the delay in filing such application.

23. After the aforesaid decisions dated 31.08.2017 in InnoventiveIndustries and dated 11.10.2018 in B.K. Educational Services, thisCourt again examined the overall scheme and spirit of the provisions ofIBC in the case of Swiss Ribbons (supra) on 25.01.2019. The relevantenunciations in Swiss Ribbons have already been noticed hereinbefore.

24. Thereafter, the case of K. Sashidhar (supra) was decided on05.02.2019. Therein, the principal issue related with the dispensationgoverning the process of approval or rejection of resolution plan by theCommittee of Creditors[33] but, having regard to the variety of contentionsurged, this Court took note of the decisions elaborately dealing with thelegislative history of the Code including that in Innoventive Industries(supra). During the course of submissions, the said decision in B.K.Educational Services was also cited and hence, the same was referredto and the ratio therein was explained in the following passage:

“78. As regards the decision in B.K. Educational, the Court wascalled upon to consider the question as to whether the LimitationAct, 1963 will apply to applications that are made under Section 7and/or Section 9 of the Code on and from its commencement on1-12-2016 till 6-6-2018. That question was examined in the contextof Section 238-A inserted in the I&B Code by the self-sameAmendment Act of 2018. The Court after adverting to thecontents of the report of the Insolvency Law Committee ofMarch 2018 and other provisions of the Code and otherenactments, opined that Section 238-A was clarificatory innature and being a procedural law, came to hold that it had 33 ‘CoC’ for short.

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Aretrospective effect. The Court held that taking any otherview would result in an incongruous situation as theprovisions of the Limitation Act would apply in some set ofcases to be decided by the same Tribunal and not in otherset of cases. Besides, the Court adverted to the principlethat right to sue accrues on the date when default occursBand if the default occurred even three years prior to thedate of filing of the application, the same cannot be treatedas “debt that is due and payable” or “debt” due.”

C25. As noticed, the abovementioned decision in K. Sashidhar wasrendered on 05.02.2019 wherein, the principles in B.K. EducationalServices were undoubtedly restated by this Court. However, thereafter,the case of Jignesh Shah (supra) came to be decided by a three-JudgeBench of this Court on 25.05.2019. A particular passage in this three-Judge Bench decision in Jignesh Shah (as occurring in paragraph 21,DSCC p. 770) has been relied upon by both the parties to assert that thelaw so declared by this Court supports their case.

25.1 In order to comprehend the meaning and import of the referredobservations in paragraph 21 of Jignesh Shah, the text thereof is requiredto be read in its context. Therefore, it shall be worthwhile to take note ofEthe relevant factual and background aspects of the case of JigneshShah. Therein, IL&FS Financial Services Ltd. (‘IL&FS’) had filed awinding up petition against La-Fin Financial Services Pvt. Ltd. (‘La-Fin’) which was transferred to National Company Law Tribunal, MumbaiBranch and then, was heard as Section 7 application under the Code.FThe background had been that on 20.08.2009, a share-purchase agreementwas executed, whereby IL&FS agreed to purchase 442 lakhs equityshares of MCX Stock Exchange Limited (‘MCX-SX’) from Multi-Commodity Exchange India Limited (‘MCX’). Pursuant to thisagreement, La-Fin, as a group company of MCX, issued a letter ofundertaking to IL&FS on 20.08.2009 stating that La-Fin or its appointedGnominees would offer to purchase from IL&FS the shares of MCX-SXafter a period of one year, but before three years, from the date ofinvestment. Thereafter, on 03.08.2012, IL&FS proposed to sell its entireholding of shares in MCX-SX and called upon La-Fin to purchase theseshares in terms of the undertaking. On 16.08.2012, La-Fin replied withHdenial of any legal or contractual obligation to buy the aforesaid shares.

Ultimately, on 19.06.2013, IL&FS filed Suit No. 449 of 2013 in theBombay High Court for specific performance of the letter of undertakingby La-Fin or, in the alternative, for damages while stating that the causeof action arose on 16.08.2012 when La-Fin refused to honour itsobligation. Interim injunction was granted in the said suit on 13.10.2014.Thereafter, on 03.11.2015, a statutory notice under Sections 433 and434 of the Companies Act, 1956 was issued by IL&FS to La-Fin whilereferring to the attachment of the properties of La-Fin by EconomicOffences Wing of the Mumbai Police and stating that La-Fin wasobviously in no financial position to pay the amount it owed to IL&FS.This notice was followed up by the winding up petition that was filed on21.10.2016 by IL&FS against La-Fin in the Bombay High Court underSection 433(e) of the Companies Act, 1956. As noticed, this companypetition was transferred to NCLT and was heard as an application underSection 7 of the Code. This transferred petition was admitted by NCLTwhile forming the opinion that as per the share-purchase agreement andthe letter of understanding, a financial debt had been incurred by La-Fin.The appeal filed by the appellant Jignesh Shah was also dismissed byNCLAT. Hence, the orders passed by NCLT and NCLAT werechallenged in this Court. A writ petition was also filed challenging theconstitutionality of certain provisions of the Code. This has been thebackdrop in which, the statutory bar of limitation against the petitionfiled by IL&FS was argued before this Court with reference to Section238-A of the Code and the decision in B.K. Educational Services(supra).

25.2. This Court accepted the contentions urged on behalf of theappellants and while reproducing the relevant passages from B.K.Educational Services, held that the bar of limitation was operating overthe application filed by IL&FS in the following words:- “12. This judgment clinches the issue in favour of the Petitioner/Appellant. With the introduction of Section 238A into the Code,the provisions of the Limitation Act apply to applications madeunder the Code. Winding up petitions filed before the Code cameinto force are now converted into petitions filed under the Code.What has, therefore, to be decided is whether the Winding upPetition, on the date that it was filed, is barred by lapse of time. Ifsuch petition is found to be time-barred, then Section 238A of theCode will not give a new lease of life to such a time-barred petition.

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AOn the facts of this case, it is clear that as the Winding upPetition was filed beyond three years from August, 2012which is when, even according to IL & FS, default inrepayment had occurred, it is barred by time.”

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25.3. Though with the aforesaid finding, the matter stoodconcluded that the petition filed by IL&FS was barred by limitation butthereafter, the Court also proceeded to examine another line ofsubmissions of the parties as regards effect of the suit for recovery overthe proceedings under Section 433 of the Companies Act, 1956, where itCwas argued on behalf of the appellants that existence of such a suitcannot be construed as having either revived the period of limitation orhaving extended it, insofar as concerning the proceeding for winding up.This Court accepted the said contention of the appellants and in thatcontext, made the observations that are relied upon by the parties andread as under:-D

“21. The aforesaid judgments correctly hold that a suit for recoverybased upon a cause of action that is within limitation cannot in anymanner impact the separate and independent remedy of a winding-up proceeding. In law, when time begins to run, it can only beextended in the manner provided in the Limitation Act. For example,Ean acknowledgment of liability under Section 18 of the LimitationAct would certainly extend the limitation period, but a suit forrecovery, which is a separate and independent proceeding distinctfrom the remedy of winding up would, in no manner, impact thelimitation within which the winding-up proceeding is to be filed, byFsomehow keeping the debt alive for the purpose of the winding-up proceeding.”

25.4. Moreover, after reading the provisions contained in Sections433(e) and 434 of the Companies Act, 1956, for winding up in case ofcompany being unable to pay its debts, this Court made yet furtherGobservations in Jignesh Shah (supra) that the trigger for limitation insuch an action occurs when a default takes place after which the debtremains outstanding; and that date alone is relevant for reckoning theperiod of limitation. After reproducing Section 433(e) and 434 of theCompanies Act, 1956, this Court said,- H

“28. A reading of the aforesaid provisions would show that thestarting point of the period of limitation is when the company isunable to pay its debts, and that Section 434 is a deeming provisionwhich refers to three situations in which a Company shall bedeemed to be “unable to pay its debts” Under Section 433(e). Inthe first situation, if a demand is made by the creditor to whomthe company 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”, or tosecure or compound for it to the reasonable satisfaction of thecreditor. “Neglected to pay” would arise only on default to paythe sum due, which would clearly be a fixed date depending onthe facts of each case. Equally in the second situation, if executionor other process is issued on a decree or order of any Court orTribunal in favour of a creditor of the company, and is returnedunsatisfied in whole or in part, default on the part of the debtorcompany occurs. This again is clearly a fixed date depending onthe facts of each case. And in the third situation, it is necessary toprove to the “satisfaction of the Tribunal” that the company isunable to pay its debts. Here again, the trigger point is the date onwhich default is committed, on account of which the Company isunable to pay its debts. This again is a fixed date that can beproved on the facts of each case. Thus, Section 433(e) readwith Section 434 of the Companies Act, 1956 would showthat the trigger point for the purpose of limitation for filingof a winding up petition Under Section 433(e) would be thedate of default in payment of the debt in any of the three situationsmentioned in Section 434.”

26. Before examining the purport, effect and impact of the principlesemanating from the aforesaid decision in Jignesh Shah, it is ratherexpedient to take note of the enunciations in a few later decisions of thisCourt, on the very same issue concerning the operation of law of limitationin regard to the application under Section 7 of the Code, which havebeen cited in the present appeal.

27. One such decision had been in the case of Vashdeo R.Bhojwani (supra) that was rendered on 02.09.2019. In that case, a defaultof Rs. 6.7 crores was found against the corporate debtor whose account AB

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was declared NPA by the lender bank on 23.12.1999 and ultimately, aArecovery certificate dated 24.12.2001 was issued for this amount. Lateron, the financial creditor filed an application under Section 7 of the Codebefore the Adjudicating Authority on 21.07.2017 claiming that the saidamount together with interest, which kept ticking from 1998, was payableto it as assignee. The application under Section 7 was admitted onB05.03.2018 by the Adjudicating Authority stating that ‘as the defaultcontinued, no period of limitation would attach and the petitionwould, therefore, have to be admitted’. The Appellate Tribunaldismissed the appeal against the aforesaid order of admission while statingthat ‘since the cause of action in the present case was continuing,no limitation period would attach’; and while further holding that theCrecovery certificate of 2001 plainly showed that there was a default andthere was no statable defence. After taking note of the relevant factsand the foundation of the orders passed by the Adjudicating Authorityand the Appellate Tribunal, this Court disapproved the same while findingthat the case was covered by the decision in B.K. Educational ServicesD(supra) and while reiterating the passage above-noted. To get out of therigour of the ratio of B.K. Educational Services, a reference was madeto the provisions of the Limitation Act providing for fresh period oflimitation in the case of continuing cause of action and it appears thatSection 23 of the old Limitation Act of 1908 was referred to[34]. ThisCourt rejected such contention while observing as under:E

34 We have indicated the provision contained in Limitation Act, 1908 for the reason thatin the cited decision, Section 23 has been referred and the decision of this Courtreported in [1959] Supp. (2) SCR 476 has been cited. The corresponding provision, asregards continuing cause of action for specific category of cases is now contained inFSection 22 of the Limitation Act, 1963 which is akin to the earlier Section 23 of theLimitation Act,1908 but with slight modifications. For the sake of reference, theseprovisions are extracted as under:

Section 23 of the Limitation Act, 1908

“Continuing breaches and wrongs - In the case of a continuing breach of contractand in the case of a continuing wrong independent of contract, a fresh period of limitationGbegins to run at every moment of the time during which the breach or the wrong, as thecase may be, continues.”

Section 22 of the Limitation Act, 1963

“Continuing breaches and torts. - In the case of a continuing breach of contract or inthe case of a continuing tort, a fresh period of limitation begins to run at every momentof the time during which the breach or the tort, as the case may be, continues.”H

“4. In order to get out of the clutches of para 27, it is urged thatSection 23 of the Limitation Act would apply as a result of whichlimitation would be saved in the present case. This contention iseffectively answered by a judgment of three learned Judges ofthis Court in Balakrishna Savalram Pujari and Others vs. ShreeDhyaneshwar Maharaj Sansthan & Others, [1959] Supp. (2)SCR 476. In this case, this Court held as follows:

“ … In dealing with this argument it is necessary to bear inmind that Section 23 refers not to a continuing right but to acontinuing wrong. It is the very essence of a continuing wrongthat it is an act which creates a continuing source of injury andrenders the doer of the act responsible and liable for thecontinuance of the said injury. If the wrongful act causes aninjury which is complete, there is no continuing wrong eventhough the damage resulting from the act may continue. If,however, a wrongful act is of such a character that the injurycaused by it itself continues then the act constitutes a continuingwrong. In this connection it is necessary to draw a distinctionbetween the injury caused by the wrongful act and what maybe described as the effect of the said injury. It is only in regardto acts which can be properly characterised as continuingwrongs that Section 23 can be invoked. Thus considered it isdifficult to hold that the trustees’ act in denying altogether thealleged rights of the Guravs as hereditary worshippers and inclaiming and obtaining possession from them by their suit in1922 was a continuing wrong. The decree obtained by thetrustees in the said litigation had injured effectively andcompletely the appellants’ rights though the damage causedby the said decree subsequently continued.”

Following this judgment, it is clear that when the recoverycertificate dated 24-12-2001 was issued, this certificateinjured effectively and completely the appellant’s rights asa result of which limitation would have begun ticking.

5. This being the case, and the claim in the present suit beingtime-barred, there is no doubt that is due and payable in law. Weallow the appeal and set aside the orders of NCLT and NCLAT.There will be no order as to costs.”

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A28. A few days after the decision in Vashdeo R. Bhojwani, athree-Judge Bench of this Court had another occasion to apply and explainthe ratio in B.K. Educational Services. That was in the case of GauravHargovindbhai Dave (supra), decided on 18.09.2019. Therein, thefinancial creditor had stated in the relevant column of Form No. 1 of theapplication under Section 7 of the Code the date of default to be the dateBof NPA i.e., 21.07.2011. The application under Section 7 was filed on03.10.2017. The Adjudicating Authority applied Article 62 of the LimitationAct and reached to the conclusion that since the limitation period wastwelve years from the date on which money sued has become due, theclaim was within limitation and hence, admitted the application. TheCNCLAT applied another reasoning that the time of limitation would beginto run only from 01.12.2016, the date on which the Code was broughtinto force. This Court took note of the contentions of both the partiesand while accepting the submissions that time began to run on 21.07.2011(the date of NPA), held that the application filed under Section 7 wastime-barred. The relevant passages of the said decision in GauravDHargovindbhai Dave (supra) could be usefully reproduced as under:-

“4. Mr Aditya Parolia, learned counsel appearing on behalf of theappellant has argued that Article 137 being a residuary articlewould apply on the facts of this case, and as right to sue accruedonly on and from 21.07.2011, three years having elapsed sinceEthen in 2014, the Section 7 application filed in 2017 is clearly outof time. He has also referred to our judgment in B.K. EducationalServices Private Limited v. Parag Gupta and Associates, 2018SCC OnLine SC 1921 in order to buttress his argument that it isArticle 137 of the Limitation Act which will apply to the facts ofFthis case.

5. Mr Debal Banerjee, learned Senior Counsel, appearing on behalfof the respondents, countered this by stressing, in particular, para7 of B.K. Educational Services Private Limited (supra) andreiterated the finding of the NCLT that it would be Article 62 ofGthe Limitation Act that would be attracted to the facts of thiscase. He further argued that, being a commercial Code, acommercial interpretation has to be given so as to make the Codeworkable.

6. Having heard the learned counsel for both sides, what isHapparent is that Article 62 is out of the way on the ground that it would only apply to suits. The present case being“an application” which is filed under Section 7, would fallonly within the residuary Article 137. As rightly pointedout by learned counsel appearing on behalf of the appellant,time, therefore, begins to run on 21.07.2011, as a result ofwhich the application filed under Section 7 would clearly betime-barred. So far as Mr Banerjee’s reliance on para 7 of B.K.Educational Services Private Limited (supra), suffice it to saythat the Report of the Insolvency Law Committee itself statedthat the intent of the Code could not have been to give a newlease of life to debts which are already time-barred.

7. This being the case, we fail to see how this para could possiblyhelp the case of the respondents. Further, it is not for us to interpret,commercially or otherwise, articles of the Limitation Act when itis clear that a particular article gets attracted. It is well settledthat there is no equity about limitation - judgments have statedthat often time periods provided by the Limitation Act can bearbitrary in nature.

8. This being the case, the appeal is allowed and the judgments ofthe NCLT and NCLAT are set aside.”

29. Close on the heels of Gaurav Hargovindbhai Dave (supra),this Court dealt with similar issue yet again in the case of Sagar Sharma(supra), decided on 30.09.2019. Therein, apart from disapproving theproposition that the date of commencement of the Code could be thestarting point of limitation (as noticed hereinabove), this Court againpointed out the fallacy in applying the period of limitation related tomortgage liability to the application under Section 7 of the Code andsaid, –

“2…..However, we find in the impugned judgment that Article 62(erroneously stated to be Article 61) was stated to be attracted tothe facts of the present case, considering that there was a deedof mortgage which was executed between the parties in this case.We may point out that an application under Section 7 of theCode does not purport to be an application to enforce anymortgage liability. It is an application made by a financial creditorstating that a default, as defined under the Code, has been made, A

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which default amounts to Rs 1,00,000 (Rupees one lakh) or morewhich then triggers the application of the Code on settled principlesthat have been laid down by several judgments of this Court.”

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30. When Section 238-A of the Code is read with the above-Bnoted consistent decisions of this Court in Innoventive Industries,B.K. Educational Services, Swiss Ribbons, K. Sashidhar,Jignesh Shah, Vashdeo R. Bhojwani, Gaurav HargovindbhaiDave and Sagar Sharma respectively, the following basicsundoubtedly come to the fore: (a) that the Code is a beneficiallegislation intended to put the corporate debtor back on its feetCand is not a mere money recovery legislation; (b) that CIRP is notintended to be adversarial to the corporate debtor but is aimed atprotecting the interests of the corporate debtor; (c) that intentionof the Code is not to give a new lease of life to debts which aretime-barred; (d) that the period of limitation for an applicationDseeking initiation of CIRP under Section 7 of the Code is governedby Article 137 of the Limitation Act and is, therefore, three yearsfrom the date when right to apply accrues; (e) that the trigger forinitiation of CIRP by a financial creditor is default on the part ofthe corporate debtor, that is to say, that the right to apply underthe Code accrues on the date when default occurs; (f) that defaultEreferred to in the Code is that of actual non-payment by thecorporate debtor when a debt has become due and payable; and(g) that if default had occurred over three years prior to the dateof filing of the application, the application would be time-barredsave and except in those cases where, on facts, the delay in filingmay be condoned; and (h) an application under Section 7 of theFCode is not for enforcement of mortgage liability and Article 62of the Limitation Act does not apply to this application.

Whether Section 18 Limitation Act could be applied to thepresent case G31. While the aforesaid principles remain crystal clear with theconsistent decisions of this Court, the only area of dispute, around whichthe contentions of learned counsel for the parties have revolved in thepresent case, is about applicability of Section 18 of the Limitation Actand effect of the observations occurring in paragraph 21 of the decisionin Jignesh Shah (supra).H

32. We have noticed all the relevant and material observationsand enunciations in the case of Jignesh Shah hereinbefore. Prima facie,it appears that illustrative reference to Section 18 of the Limitation Act,in paragraph 21 of the decision in Jignesh Shah, had only been in relationto the suit or other proceedings, wherever it could apply and where theperiod of limitation could get extended because of acknowledgment ofliability. Noticeably, in contradistinction to the proceeding of a suit, thisCourt observed that a suit for recovery, which is a separate andindependent proceeding distinct from the remedy of winding up would,in no manner, impact the limitation within which the winding up proceedingis to be filed[35]. It is difficult to read the observations in the aforesaidparagraph 21 of Jignesh Shah to mean that the ratio of B.K.Educational Services has, in any manner, been altered by this Court.As noticed, in B.K. Educational Services, it has clearly been held thatthe limitation period for application under Section 7 of the Code is threeyears as provided by Article 137 of the Limitation Act, which commencesfrom the date of default and is extendable only by application of Section5 of Limitation Act, if any case for condonation of delay is made out.The findings in paragraph 12 in Jignesh Shah makes it clear that theCourt indeed applied the principles so stated in B.K. EducationalServices, and held that the winding up petition filed beyond three yearsfrom the date of default was barred by time.

32.1. Even in the later decisions, this Court has consistently appliedthe declaration of law in B.K. Educational Services (supra). As noticed,in the case of Vashdeo R. Bhojwani (supra), this Court rejected thecontention suggesting continuing cause of action for the purpose ofapplication under Section 7 of the Code while holding that the limitationstarted ticking from the date of issuance of recovery certificate dated24.12.2001. Again, in the case of Gaurav Hargovindbhai Dave (supra),where the date of default was stated in the application under Section 7of the Code to be the date of NPA i.e., 21.07.2011, this Court held thatthe limitation began to run from the date of NPA and hence, the applicationfiled under Section 7 of the Code on 03.10.2017 was barred by limitation.

32.2. In view of the above, we are not inclined to accept thearguments built up by the respondents with reference to one part ofobservations occurring in paragraph 21 of the decision in Jignesh Shah(supra).

35What has been observed in relation to the proceeding for winding up, perforce, appliesto the application seeking initiation of CIRP under IBC.

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A33. Apart from the above and even if it be assumed that theprinciples relating to acknowledgement as per Section 18 of the LimitationAct are applicable for extension of time for the purpose of the applicationunder Section 7 of the Code, in our view, neither the said provision andprinciples come in operation in the present case nor they enure to thebenefit of respondent No. 2 for the fundamental reason that in theBapplication made before NCLT, the respondent No. 2 specifically statedthe date of default as ‘8.7.2011 being the date of NPA’. It remainsindisputable that neither any other date of default has been stated in theapplication nor any suggestion about any acknowledgement has beenmade. As noticed, even in Part-V of the application, the respondent No.C2 was required to state the particulars of financial debt with documentsand evidence on record. In the variety of descriptions which could havebeen given by the applicant in the said Part-V of the application andeven in residuary Point No. 8 therein, nothing was at all stated at anyplace about the so called acknowledgment or any other date of default.

33.1. Therefore, on the admitted fact situation of the present case,Dwhere only the date of default as ‘08.07.2011’ has been stated for thepurpose of maintaining the application under Section 7 of the Code, andnot even a foundation is laid in the application for suggesting anyacknowledgement or any other date of default, in our view, the submissionssought to be developed on behalf of the respondent No. 2 at the laterstage cannot be permitted. It remains trite that the question of limitationEis essentially a mixed question of law and facts and when a party seeksapplication of any particular provision for extension or enlargement ofthe period of limitation, the relevant facts are required to be pleaded andrequisite evidence is required to be adduced. Indisputably, in the presentcase, the respondent No. 2 never came out with any pleading other thanFstating the date of default as ‘08.07.2011’ in the application. That beingthe position, no case for extension of period of limitation is available tobe examined. In other words, even if Section 18 of the Limitation Actand principles thereof were applicable, the same would not apply to theapplication under consideration in the present case, looking to the veryaverment regarding default therein and for want of any other avermentGin regard to acknowledgement. In this view of the matter, reliance onthe decision in Mahaveer Cold Storage Pvt. Ltd. does not advance thecause of the respondent No. 2.

34. The submissions made on behalf of respondents that the rulesof limitation are not meant to destroy the rights of the parties andreference to the decision in N. Balakrishnan (supra) are also misplaced.H

Application of the rules of limitation to CIRP (by virtue of Section 238-A of the Code read with the above-referred consistent decisions of thisCourt) does not, in any manner, deal with any of the rights of respondentNo. 2; it only bars recourse to the particular remedy of initiation of CIRPunder the Code. Equally, the other submissions made on behalf of therespondents about any stringent application of the law of limitation whichwas introduced to the Code only after filing of the application byrespondent No. 2; or about the so called prejudice likely to be caused toother banks and financial institutions are also of no substance, particularlyin the light of the principles laid down and consistently followed by thisCourt right from the decision in B.K. Educational Services (supra).These contentions have only been noted to be rejected. Needless to addthat when the application made by the respondent No. 2 for CIRP isbarred by limitation, no proceedings undertaken therein after the orderof admission could be of any effect. All such proceedings remain non-est and could only be annulled.

The reasonings of NCLAT

35. The foregoing discussion practically concludes the principalpart of contentions urged in this matter but, to put the record straight, wemay also deal with the reasonings adopted by NCLAT in the impugnedorder dated 14.05.2019. As noticed hereinbefore, though NCLAT hasreferred to the pendency of the application under Section 19 of the Actof 1993 as also the fact that corporate debtor had made a prayer forOTS in the month of July, 2018 but, has not recorded any specific findingabout the effect of these factors. Only two reasons essentially appear tohave weighed with NCLAT to hold that the application in question iswithin limitation: One, that the right to apply under Section 7 of the Codeaccrued to the respondent financial creditor on 01.12.2016 when theCode came into force; and second, that the period of limitation forrecovery of possession of the mortgaged property is twelve years. Thereasonings so adopted by NCLAT do not stand in conformity with thelaw declared by this Court and could only be disapproved.

36. The question as to whether date of enforcement of the Code(i.e., 01.12.2016) provides the starting point of limitation for an applicationunder Section 7 of the Code and hence, the application in question, madein the year 2018, is within limitation, is not even worth devoting muchtime. A bare look at paragraph 21 of the impugned order leaves nothingto guess that such observations by the Appellate Tribunal had only beenassumptive in nature without any foundation and without any basis. Thereis nothing in the Code to even remotely indicate if the period of limitation A

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Afor the purpose of an application under Section 7 is to commence fromthe date of commencement of the Code itself. Similarly, nothing providedin the Limitation Act could be taken as the basis to support the propositionso stated by the Appellate Tribunal. In fact, such observations had beenin the teeth of law declared by this Court in the case of B. K.Educational Services (supra).B

36.1. It appears that at the given point of time, NCLAT had beenreadily adopting such a proposition in other cases too, so as to treatsimilar applications within limitation. This approach of NCLAT wasspecifically disapproved by this Court in Sagar Sharma (supra) where,after observing that in B. K. Educational Services (supra) it had alreadyCbeen made clear that the date of the Code’s coming into force on01.12.2016 was wholly irrelevant to the triggering of any limitation periodfor the purposes of the Code, this Court said,-

“3. Article 141 of the Constitution of India mandates that ourjudgments are followed in letter and spirit. The date of cominginto force of the IB Code does not and cannot form a trigger pointDof limitation for applications filed under the Code. Equally, since“applications” are petitions which are filed under the Code, it isArticle 137 of the Limitation Act which will apply to suchapplications.”

37. The other observations as made and the reasoning as adoptedEby the Appellate Tribunal in paragraphs 29 and 30 of the impugned order,that the property having been mortgaged, the claim is not barred bylimitation because of the period of limitation of twelve years with regardto mortgaged property, had again been erroneous and do not stand inconformity with the dictum of this Court.

37.1. The Appellate Tribunal was conscious of the decision of thisFCourt in B. K. Educational Services (supra) wherein it had been heldin no uncertain terms that the limitation provided in Article 137 governsthe application under Section 7 of the Code. When Article 137, being theresiduary provision on the period of limitation for “other applications” isheld applicable by this Court for the purpose of reckoning the period ofGlimitation for an application under Section 7 of the Code, it remains ratherinexplicable as to how the Appellate Tribunal could have applied anyother Article of Limitation Act (and that too relating to suits) for thepurpose of such an application?

37.2. In the totality of circumstances, we are also constrained torefer to paragraph 24 of the very same order wherein, the AppellateH

Tribunal has noticed its own decision in the case of Binani Industries,holding that the period of limitation prescribed in the First Division of theSchedule to the Limitation Act (providing limitation period for suits) isnot applicable to the proceedings under the Code. However, theobservations and findings in the later part of the impugned order arecontrary even to those occurring in the said paragraph 24 of the verysame order.

37.3. It again appears that in other cases too, similar reasoningprevailed with the Adjudicating Authorities as also the Appellate Tribunal,where the Articles of the Limitation Act relating to the suits concerningmortgaged property (and thereby the period of limitation of twelve years)were sought to be applied to hold that similar applications under Section7 of the Code were not barred by limitation. Such propositions werespecifically disapproved by a three-Judge Bench of this Court in thecase of Gaurav Hargovindbhai Dave (supra) decided on 18.09.2019.As noticed hereinbefore, in Gaurav Hargovindbhai Dave (supra) thisCourt disapproved the approach of Adjudicating Authority in applyingArticle 62 of the Limitation Act to such an application under Section 7 ofthe Code with the observations that Article 62 is out of way, for it appliesonly to suits; and application under Section 7 falls within the ambit ofresiduary Article 137. In Sagar Sharma (supra), this Court again pointedout the fallacy in applying the period of limitation related to mortgageliability for the purpose of application under Section 7 of the Code.

37.4. In view of the above, there remains nothing to doubt that theAppellate Tribunal had been in error in applying the period of limitationprovided for mortgage liability for the purpose of limitation applicable tothe application in question. The observations and findings in paragraphs29 and 30 of the impugned order are also required to be disapproved.

Summation

38. The discussion foregoing leads to the inescapable conclusionthat the application made by the respondent No. 2 under Section 7 of theCode in the month of March 2018, seeking initiation of CIRP in respectof the corporate debtor with specific assertion of the date of default as08.07.2011, is clearly barred by limitation for having been filed muchlater than the period of three years from the date of default as stated inthe application. The NCLT having not examined the question of limitation;the NCLAT having decided the question of limitation on entirely irrelevantconsiderations; and the attempt on the part of the respondents to savethe limitation with reference to the principles of acknowledgment havingbeen found unsustainable, the impugned orders deserve to be set aside A

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Aand the application filed by the respondent No. 2 deserves to be rejectedas being barred by limitation.

Other proceedings not to be affected

39. Before concluding on this matter, we would hasten to observethat admittedly, at the time of moving of the application under Section 7Bof the Code by the respondent No. 2, a petition under Section 19 of theAct of 1993 was pending before DRT against the corporate debtor. Inview of admission of the application under Section 7 of the Code byNCLT, the said petition under Section 19 of the Act of 1993 (and anyother pending matter against the corporate debtor) could not haveproceeded during the period of moratorium in terms of Section 14 of theCCode. Now, by virtue of this judgment, the said application under Section7 of the Code shall stand rejected for being barred by limitation and allthe proceedings thereunder shall stand annulled. As a necessaryconsequence, the moratorium in terms of Section 14 of the Code shallget lifted and, therefore, those stalled proceedings should now be takenup and dealt with by the respective Courts/Tribunals/Authorities, ofDcourse, strictly in accordance with law. In the interest of justice, we alsomake it clear that the observations in this judgment are relevant only inregard to the issue determined that the application under Section 7 of theCode is barred by limitation and not beyond. In other words, nothing inthis judgment shall have bearing on any other proceeding that shall bedealt with on its own merits and in accordance with law.E

Conclusion

40. In view of the above, this appeal is allowed to the extentindicated and with the observations foregoing. The impugned orders dated14.05.2019 as passed by the National Company Law Appellate Tribunal,New Delhi in Company Appeal (AT) Insolvency No. 549 of 2018 andFdated 09.08.2018 as passed by the National Company Law Tribunal,Mumbai Bench in CP(IB)-488/I&BP/MB/2018 are set aside; and theapplication made by the respondent No. 2 under Section 7 of the Code,seeking initiation of Corporate Insolvency Resolution Process in respectof respondent No. 1 is rejected for being barred by limitation.GConsequently, all the proceedings undertaken in the said application underSection 7 of the Code, including appointment of IRP, stand annulled. Nocosts.

Ankit Gyan

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