Ishrat Ali Vs. Cosmos Cooperative Bank Ltd. & Anr - Action under SARFAESI Act will not extend Limitation

NCLAT (2020.03.12) in Ishrat Ali Vs. Cosmos Cooperative Bank Ltd. & Anr. [Company Appeal (AT) (Insolvency) No. 1121 of 2019] held that Action taken under Section 13(2) of the SARFAESI Act, 2002 cannot be counted for the purpose of exclusion of the period of limitation under Section 14(2) of the Limitation Act, 1963:

• An action taken by the ‘Financial Creditor’ under Section 13(2) or Section 13(4) of the ‘SARFAESI Act, 2002’ cannot be termed to be a civil proceeding before a Court of first instance or appeal or revision before an Appellate Court and the other forum. Therefore, action taken under Section 13(2) of the ‘SARFAESI Act, 2002’ cannot be counted for the purpose of exclusion of the period of limitation under Section 14(2) of the Limitation Act, 1963.

• Therefore, to take advantage of Section 14(2), the Applicant must satisfy:

• i. That the applicant has been prosecuting with due diligence in another civil proceeding, whether in a court of first instance or of appeal or revision.

• ii. against the same party; and

• iii. for the same relief.

 

Facts of the case; the account of the Corporate Debtor was classified as NPA on 30th March, 2014. Thereafter, on 6th December, 2014, Demand Notice under Section 13(2) of the SARFAESI Act, 2002 was issued by the Respondent- Cosmos Co-operative Bank Ltd. The Bank also initiated Arbitration under Section 84 of the Multi-State Cooperative Societies Act on 4th December, 2015. The Bank had also taken possession of the movable assets under Section 13(4) of the SARFAESI Act, 2002 as back as on 16th January, 2017. 

 

Excerpts of the order;

# 8. Similar issue fell for consideration before the Hon’ble Supreme Court in “Gaurav Hargovindbhai Dave vs. Asset Reconstructions Company (India) Limited and another – (2019) 10 SCC 572”. In the said case, the Hon’ble Supreme Court has noticed that the Respondent was declared NPA on 21st July, 2011. The Bank had filed two OAs before the Debts Recovery Tribunal in 2012 to recover the total debt. Taking into consideration the facts, the Supreme Court held that the default having taken place and as the account was declared NPA on 21st July, 2011, the application under Section 7 was barred by limitation. For proper appreciation, it is better to note the facts of the judgment as follows: -

• # 6. Having heard the learned counsel for both sides, what is apparent 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 fall only within the residuary Article 137. As rightly pointed out by the learned counsel appearing on behalf of the appellant, time, therefore, begins to run on 21-7-2011, as a result of which the application filed under Section 7 would clearly be time-barred. So far as Mr Banerjee's reliance on para 11 of B.K. Educational Services (P) Ltd., suffice it to say that the Report of the Insolvency Law Committee itself stated that the intent of the Code could not have been to give a new lease of life to debts which are already time-barred.

 

# 9. In “Sagar Sharma & Anr. vs. Phoenix ARC Pvt. Ltd. & Anr. – Civil Appeal No.7673 of 2019 – (2019) 10 SCC 353”, the Hon’ble Supreme Court vide its judgment dated 30th September, 2019, referring to the decision in B. K. Educational Services Private Limited (Supra) reminded this Appellate Tribunal that for application under Section 7 of the Code, Article 137 of the Limitation Act, 1963 will apply. Article 62, which relates to deed of mortgage executed between the parties, cannot be taken into consideration for counting the period of limitation.

 

# 18. Section 14(2) of the Limitation Act, 1963 makes it clear that in computing the period of limitation for any application, the time during which the applicant has been prosecuting with due diligence another civil proceeding, whether in a court of first instance or of appeal or revision, against the same party for the same relief shall be excluded, where such proceeding is prosecuted in good faith in a court which, from defect of jurisdiction or other cause of a like nature, is unable to entertain it.

 

# 19. Therefore, to take advantage of Section 14(2), the Applicant must satisfy:

• i. That the applicant has been prosecuting with due diligence in another civil proceeding, whether in a court of first instance or of appeal or revision.

• ii. against the same party; and

• iii. for the same relief.

 

# 21. An action taken by the ‘Financial Creditor’ under Section 13(2) or Section 13(4) of the ‘SARFAESI Act, 2002’ cannot be termed to be a civil proceeding before a Court of first instance or appeal or revision before an Appellate Court and the other forum. Therefore, action taken under Section 13(2) of the ‘SARFAESI Act, 2002’ cannot be counted for the purpose of exclusion of the period of limitation under Section 14(2) of the Limitation Act, 1963. In an application under Section 7 relief is sought for resolution of a ‘Corporate Debtor’ or liquidation on failure. It is not a money claim or suit. Therefore, no benefit can be given to any person under Section 14(2), till it is shown that the application under Section 7 was prosecuting with due diligence in a court of first instance or of appeal or revision which has no jurisdiction.

 

# 22. The decision rendered in “Sesh Nath Singh & Ors. v. Baidyabati Sheoraphuli Cooperative Bank Ltd.” (Supra) thereby cannot be held to be a correct law laid down by the Bench.

 

# 23. In the present case, the account of the ‘Corporate Debtor’ was classified as NPA on 30th March, 2014. Thereafter, on 6th December, 2014, Demand Notice under Section 13(2) of the ‘SARFAESI Act, 2002’ was issued by the Respondent- ‘Cosmos Co-operative Bank Ltd.’ The Bank also initiated Arbitration under Section 84 of the Multi-State Cooperative Societies Act on 4th December, 2015. The Bank had also taken possession of the movable assets under Section 13(4) of the ‘SARFAESI Act, 2002’ as back as on 16th January, 2017.

 

# 24. In the circumstances, instead of remitting the case to the Bench, we hold that application under Section 7 filed by the ‘Cosmos Co- Operative Bank Limited’ was barred by limitation. We, accordingly, set aside the impugned order dated 23rd September, 2019 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Mumbai.

 

# 25. In effect, order(s), passed by the Adjudicating Authority appointing ‘Interim Resolution Professional’, declaring moratorium, freezing of account, and all other order (s) passed by the Adjudicating Authority pursuant to impugned order and action, if any, taken by the ‘Interim Resolution Professional’, including the advertisement, if any, published in the newspaper calling for applications all such orders and actions are declared illegal and are set aside. The application preferred by Respondent under Section 7 of the ‘I&B Code’ is dismissed. Learned Adjudicating Authority will now close the proceeding. The ‘Corporate Debtor’ (company) is released from all the

 

----------------------