PUNJAB NATIONAL BANK versus MR. VIJAY SITARAM DANDNAIK & ANR. on 30 August 2022

ORDER

1. The order of admission of their petition under Section 7 of theInsolvency and Bankruptcy Code, 2016 (for short “IBC”) passed by theNational Company Law Tribunal (for short “NCLT”), having been H

Areversed by the National Company Law Appellate Tribunal (for short“NCLAT”) on the ground that the application was barred by limitation,the Financial Creditor-Punjab National Bank has come up with the aboveappeal.

2. We have heard Shri Dhruv Mehta, learned senior counselBappearing for the appellant and Shri Rahul Totala, learned counselappearing for the respondents.

3. The appellant herein filed a petition under Section 7 IBC againstM/s Jailaxmi Sugar Products Pvt. Limited, the Corporate Debtor, who isthe second respondent herein claiming, inter alia, (i) that vide sanctionCletters dated 07.05.2010 and 28.09.2010, a term loan was sanctioned tothe second respondent herein; (ii) that by a letter dated 17.09.2011,restructuring of the existing term loans and fresh sanction of term loanwas granted to the Corporate Debtor; (iii) that the Corporate Debtordefaulted in repayment and became a NPA on 31.03.2013; (iv) that theappellant issued a demand notice dated 30.04.2013 under Section 13(2)Dof the Securitisation and Reconstruction of Financial Assets andEnforcement of Security Interest Act, 2002; (v) that the Corporate Debtoralso executed Balance and Security Confirmation letters dated 03.07.2014and 17.06.2017; (vi) that the appellant, along with the Union Bank ofIndia also filed an application in O.A. No.185 of 2014 on the file of theEDRT, Pune for the issue of a certificate of recovery; (vii) that the originalapplication was allowed by DRT, Pune by an order dated 01.11.2016,directing the Corporate Debtor and others including respondent No.1herein to jointly and severally pay to the appellant herein, a sum of aroundRs.45 cores together with interest @16.25% per annum (apart from theamount payable to Union Bank of India); (viii) that the total amountFoutstanding from the Corporate Debtor as on 13.08.2019 wasRs.108,34,33,364.19; and (ix) that in a parallel proceeding, the High Courtof Judicature at Bombay had passed an order dated 04.01.2018 directingthe winding up of the Corporate Debtor.

4. By an order dated 06.11.2019, NCLT admitted the petition ofGthe appellant herein, filed under Section 7 IBC. Challenging the orderof admission, the first respondent herein, who claims to be a 50%shareholder, promoter, director and creditor of the Corporate-Debtorfiled an appeal before NCLAT. By the order dated 02.03.2021 impugnedin this appeal, the NCLAT set aside the order of the NCLT on theHground that the claim of the appellant-Financial Creditor was barred by limitation. Aggrieved by the said order, the Financial Creditor is onappeal before us.

5. Before the NCLAT, the first respondent raised a preliminaryobjection that in the light of the order of winding up passed by the HighCourt of Judicature at Bombay, an application under Section 7 IBC wasnot maintainable. But the said contention raised by the first respondentwas rejected by NCLAT on the basis of the decision of this Court in Jaipur Metals and Electricals Employees Organization vs. JaipurMetals and Electricals Ltd. & Ors.[1]

6. After overruling the objection relating to maintainability raisedon the basis of the order of winding up, NCLAT took up for considerationthe question of limitation. NCLAT opined that the decision of this Courtin Babulal Vardharji Gurjar vs. Veer Gurjar Aluminium IndustriesPvt. Ltd. & Anr.[2], clinched the issue on the question of limitation andthat the application under Section 7, filed on 10.10.2019 was beyond aperiod of three years from the date of default (NPA) namely 31.03.2013.The Balance and Security Confirmation Letter dated 17.06.2017 washeld by NCLAT to have been given after the expiry of three years fromthe date of default and as a consequence, Section 18 of the LimitationAct was also held to be inapplicable to the case of the appellant. Hencethe present appeal.

6. But a perusal of the records and a careful consideration of thecontentions raised on both sides show that NCLAT failed to take note ofcertain important aspects, both on fact and on law. Section 7(1) of theIBC enables a financial creditor to initiate corporate insolvency resolutionprocess “when a default has accrued”. The Explanation under sub-Section (1) of Section 7 makes it clear that a default includes adefault in respect of a financial debt owed not only to the applicant-Financial Creditor but to any other financial creditor of theCorporate Debtor. The fact that the corporate debtor has been orderedby the High court of Judicature at Bombay to be wound up, is proofenough to show that the case falls under the category mentioned in theExplanation to section 7(1).

7. The word “default” is defined in Section 3(12) of the IBC tomean “non-payment of debt when whole or any part or instalment 1 (2019) 4 SCC 227

2 (2020) 15 SCC 1

AB

C

D

E

F

G

Aof the amount of debt has become due and payable and is not paidby the debtor or the corporate debtor, as the case may be.”

8. By Act 26 of 2018, Section 238A was inserted in the IBC toprovide that the provisions of the Limitation Act, 1963 shall, as far asmay be, apply to the proceedings or appeals before the AdjudicatingBAuthority and the NCLAT. By virtue of the above amendment, the doubtif any, on the question of applicability of the law of limitation to theproceedings under the IBC, got cleared.

9. It may be noted that different provisions of IBC, 2016 cameinto force on different dates. Sections 4 to 32, Sections 60 to 77, SectionsC198, 231 and 236 to 238 came into force on 01.12.2016, vide SO No.3594(E ) dated 30.11.2016.

10. Act No.26 of 2018, by which Section 238A was inserted, cameinto force on 06.06.2018. Therefore, a question arose in B.K. EducationalServices Private Limited vs. Parag Gupta and Associates[3] as toDwhether the provisions of the Limitation Act, 1963 would apply toapplications filed under Sections 7/9 of the IBC on and from itscommencement on 01.12.2016 till 06.06.2018. This Court took note ofSection 3(37) of the IBC which makes a reference to the CompaniesAct, 2013, insofar as words and expressions not defined in the IBC areconcerned and made a reference to Sections 408 and 424 of theECompanies Act, 2013 and came to the conclusion that by virtue of Section433 of the Companies Act, 2013, the provisions of the Limitation Act willapply even to proceedings initiated before the insertion of Section 238A.As a consequence, this Court held that Article 137 of the Schedule tothe Limitation Act, which prescribes a period of three years from theFdate “when the right to apply accrues”, to any application for whichno period of limitation is provided elsewhere in the Schedule, will beapplicable.

10. The ratio in B.K. Educational Services (supra), foundelaboration in Jignesh Shah and Anr. vs. Union of India and Anr.[4],Gwhere this Court held a petition for winding up to be barred by limitation,as it was filed beyond a period of three years from the date on which thecause of action, as mentioned in an already instituted suit for specificperformance/damages arose. Two important principles could be deduced 3 (2019) 11 SCC 633H4 (2019) 10 SCC 750

from the decision in Jignesh Shah (supra). They are: (i) a suit forrecovery based upon a cause of action that is within limitation, cannot inany manner impact the separate and independent remedy of winding upproceedings and hence the proceeding for winding up should also havebeen initiated before the expiry of the period of limitation; and (ii) in law,when time begins to run, it can only be extended in the manner providedin the Limitation Act, say for instance, an acknowledgment of liabilityunder Section 18 of the Limitation Act.

11. After Jignesh Shah (supra), this Court was concerned inBabulal Vardharji Gurjar (supra), with a case where one of thequestions that came up for consideration was whether the period oflimitation for filing an application under Section 7 of the IBC, would bedifferent in the case of a debt secured by a mortgage. For answering thesaid question, this Court considered all previous decisions of this Courtand enunciated the principles of law as culled out from those decisionsin paragraph 32 as follows:

“32. When Section 238-A of the Code is read with the above-noted 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 beneficial legislation intended to put thecorporate debtor back on its feet and is not a mere money recoverylegislation; (b) that CIRP is not intended to be adversarial to the corporatedebtor but is aimed at protecting the interests of the corporatedebtor;

(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 an application seeking initiationof CIRP under Section 7 of the Code is governed by Article 137ofthe Limitation Act and is, therefore, three years from the datewhen 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 the A

B

C

D

E

F

G

H

Aright to apply under the Code accrues on the date when defaultoccurs; (f) that default referred to in the Code is that of actual non-paymentby the corporate debtor when a debt has become due and payable;and B

(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 the Code is not forCenforcement of mortgage liability and Article 62of the LimitationActdoes not apply to this application.”

12. After answering the question relating to a debt secured by amortgage as aforesaid, this Court took up for consideration in Babulal,the question regarding applicability of Section 18 of the Limitation Act.DThough the decision in Jignesh Singh was by a three member Benchwhich held in paragraph 21 of its decision that “in law when time beginsto run it can only be extended in the manner provided in the LimitationAct”, it was held in Babulal (by a 2 member Bench) that Limitationwould begin to run from the date of NPA itself. To come to the saidEconclusion, this Court referred to the decision in Vashdeo R. Bhojwanivs. Abhyudaya Co-operative Bank Ltd. & Anr.[5]

13. But Vashdeo R. Bhojwani (supra) was a case where thedebt was declared as NPA in 1999 and a Recovery Certificate wasissued in 2001, but the petition under Section 7 IBC was filed in 2017. ItFis only because of this, that this Court held in Vashdeo R. Bhojwani thatwhen the Recovery Certificate dated 24.12.2001 was issued, thatCertificate injured effectively and completely the appellant’s rights,as a result of which limitation would have begun ticking.

14. In other words, this Court found in Vashdeo R. Bhojwani,that the application under Section 7 was filed beyond a period of threeGyears from the date of the certificate of recovery and not from the dateof declaration of NPA. Therefore, the somewhat discordant note struckin Babulal, did not and could not have altered the ratio laid down inparagraph 21 of Jignesh Shah. The cloud of doubt created by Babulal H5 (2019) 9 SCC 158

with regard to the applicability of Section 18 of the Limitation Act stoodcleared subsequently in Asset Reconstruction Company (India) Limitedvs. Bishal Jaiswal and Anr.[6], wherein this Court went to the extent ofholding that an entry in the balance sheet of the company could also betreated as an acknowledgment in writing, subject however to any caveatfound in the accompanying reports.

15. In any case, this Court clarified in Dena Bank vs. C.Shivakumar Reddy and Another[7] that Babulal was rendered in theparticular facts of the case. It will be relevant to take note of thediscussion in paragraph 105 to 107 of the decision in Dena Bank (supra)which reads as follows:

“105. The judgment of this Court in Babulal Vardharji Gurjarwas rendered in the facts of the aforesaid case, where the dateof default had been mentioned a 8-7-2011 being the date of NPAand it remained undisputed that there had neither been any otherdate of default stated in the application nor had any suggestionabout any acknowledgment been made.

106. In the backdrop of the aforesaid facts, this Court observedthat even if Section 18 of the Limitation Act and principle thereofwere applicable, the same would not apply to the applicationunder consideration, in view of the averments regarding defaulttherein and for want of any other averment with regard toacknowledgment.

107. It is well settled, that a judgment is a precedent for the issueof law that is raised and decided and not any observations madein the facts of the case. As very aptly penned by V. Sudhish Pai inConstitutional Supremacy-A Revisit, “Judicial utterances/pronouncements are in the setting of thefacts of a particular case. To interpret words and provisions ofa statute it may become necessary for Judges to embark uponlengthy discussions, but such discussion is meant to explain notdefine. Judges interpret statutes, their words are not to beinterpreted as statutes.”

The aforesaid passage was extracted and incorporated as part ofthe judgment of this Court in Sesh Nath Singh.”

6 (2021) 6 SCC 366

7 (2021) 10 SCC 330

A

B

C

D

E

F

G

H

A16. The correctness of the decision in Dena Bank (supra) wasquestioned by a corporate debtor in Kotak Mahindra Bank Ltd. Vs. A.Balakrishnan[8 ]wherein it was contended that the decision in Dena Bank(supra) was per incuriam, on the ground it did not take into accountsub-Sections (22) and (22A) of Section 19 of the Recovery of DebtsDue to Banks and Financial Institutions Act, 1993 (hereinafter referredBto as DRT Act) as well as Clauses (6), (10), (11) and (12) of Section 3,Clauses (7) and (8) of Section 5, Section 6 and Section 14(1A) of IBC.While rejecting the said contention, this Court reiterated in no uncertainterms in Kotak Mahindra Bank (supra) that a person would be entitledto initiate CIRP within a period of three years from the date on whichCthe recovery certificate is issued by DRT.

A

17. Therefore, Dena Bank holds the field as on date. In the caseon hand, the order of the Debt Recovery Tribunal in the OriginalApplication filed by the appellant under Section 19 of the Act, 1993, isdated 01.11.2016. It is only thereafter that the Corporate Debtor issuedDBalance and Security Confirmation letter dated 17.06.2017, apart frommaking a request for restructuring the loan. Therefore, the applicationfiled by the appellant under Section 7 was clearly within three yearsfrom the date on which the “right to apply” in terms of Article 137accrued. Hence the impugned order of the NCLAT, which places heavyreliance only upon Babulal, is not correct.E

18. Before parting, we cannot resist the temptation to point out anincongruity in the way the law has developed. The Limitation Act, 1963,as is well understood, extinguishes the remedy and not the right. This iswhy the Act itself contains several provisions for the exclusion of time,while computing the period of limitation.F

19. Consistently this Court has held that the initiation of CIRPunder the IBC is to put the corporate debtor back on its feet, by retainingthe substratum, even while replacing the management with a new team(Resolution Applicant). In other words, the object of IBC has beenunderstood to be something that is beneficial for the corporate debtor soGthat it continues to survive as a going concern. As pointed out by thisCourt in Innoventive Industries Ltd. vs. ICICI Bank & Anr.[9], “…thescheme of the Code, therefore, is to make an attempt, by divesting 8 (2020) SCC OnLine SC 706H9 (2018) 1 SCC 407

the erstwhile management of its powers and vesting it in aprofessional agency, to continue the business of the corporate bodyas a going concern until a resolution plan is drawn up, in whichevent the management is handed over under the plan so that thecorporate body is able to pay back its debts and get back on itsfeet…” (paragraph 33 of the decision).

20. In other words, IBC is projected as a law which enables thefinancial/operational creditor to initiate CIRP, not for helping himself outwith the recovery of the debt due to him, but for helping the corporatedebtor to survive and continue in business. A financial/operational creditordoes not go to court or other forum with the altruistic mission of helpingthe corporate debtor to continue as a going concern. But after repeatedlyholding that the proceedings under the IBC are not in substance,proceedings for recovery of money, this Court and the statute haveeffectively applied the law of limitation, which was intended to apply toproceedings for enforcement of rights.

21. It may be pointed out that the Schedule to the Limitation Act,1963 is divided into three divisions. The First division relates to suits, theSecond division relates to appeals and the Third division relates toapplications. The First division which relates to Suits is divided into 10parts which deal respectively with:-

(i) Suits relating to accounts;

(ii) Suits relating to contracts;

(iii) Suits relating to declarations;

(iv) Suits relating to decrees and instruments;

(v) Suits relating to immovable property;

(vi) Suits relating to movable property;

(vii) Suits relating to Tort;

(viii) Suits relating to Trust and Trust property;

(ix) Suits relating to miscellaneous matters; and

(x) Suits for which no period is prescribed.

22. The Second division of the Schedule to the Limitation Actdeals with appeals. The Third division of the Schedule to the Limitation A

B

C

D

E

F

G

H

AAct is again divided into two parts, with Part-I dealing with applicationsin specified cases and Part-II dealing with other applications.

23. For the law of limitation, the remedy is the goal post andthe right is the sign post from where the journey commences. Aperson initiating any proceeding in a court of law must show the existenceBof both a right in himself and a remedy for himself, but the IBC is a lawwhere the sign post namely the right is for the financial/ operationalcreditor and the goal post namely the remedy, is for the corporate debtor,though the creditor may also recover a portion of his debt after having ahair-cut, if not a tonsure. This incongruity has perhaps led this CourtCundertaking an arduous journey through the path of limitation and tryingto negotiate its way through several bad patches.

24. Now coming back to the case on hand, the application filed bythe appellant-Bank under Section 7 IBC was within the period of limitation.Therefore this appeal is allowed and the impugned order of the NCLATdated 02.03.2021 is set aside. No order as to costs.D

Nidhi Jain

(Assisted by : Tamana, LCRA)

Appeal allowed.

E

F

G

H