1. Objectives of the Code
i. Code vis a vis CD
ii. Purpose of CIRP of CD
iii. Trigger of CIRP
iv. Satisfaction of AA as to occurrence of default’ before admitting
v. Legislative policy of IBC
2. Operation of law of limitation over IBC proceedings.
3. Applicability of Section 18 of Limitation Act to CIRP proceedings under Section 7 of the Code
4, Date of enforcement of Code as starting point for application of limitation
5. Summary
Excerpts of the order;
# 18.1. As noticed from Preamble, the Code came to be enacted to consolidate and amend the laws relating to reorganisation and insolvency resolution of corporate persons and even of partnership firms and individuals in a time bound manner; the objectives, inter alia, being for maximisation of value of assets of such persons and balance of interest of all the stakeholders.
# 19. As regards corporate debtor, the primary focus of the Code is to ensure its revival and continuation by protecting it from its own management and, as far as feasible, to save it from liquidation. As tersely put by this Court in Swiss Ribbons (supra), the Code is thus a beneficial legislation which puts the corporate debtor back on its feet, not being a mere recovery legislation for creditors.
# 19.2. In relation to a financial creditor, the trigger for CIRP is default by the corporate debtor of rupees one lakh or more against the debt/s. When seeking initiation of CIRP qua a corporate debtor, the financial creditor is required to make the application in conformity with the requirements of Section 7 of the Code while divulging the necessary information and evidence, as required by the Rules of 2016. After completion of all other requirements, for admitting such an application of the financial creditor, the Adjudicating Authority has to be satisfied, as per sub-section (5) of Section 7 of the Code, that “default” has occurred and, in this process of consideration by the Adjudicating Authority, the corporate debtor is entitled to point out that default has not occurred in the sense that the “debt”, which may also include a disputed claim, is not due. A debt may not be due if it is not payable in law or in fact. As observed by this Court, the legislative policy now is to move away from the concept of “inability to pay debts” to
“determination of default”.
# 30. 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 Hargovindbhai Dave and Sagar Sharma respectively, the following basics undoubtedly come to the fore:
(a) that the Code is a beneficial legislation intended to put the corporate debtor back on its feet and is not a mere money recovery legislation;
(b) that CIRP is not intended to be adversarial to the corporate debtor but 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 to debts which are time-barred;
(d) that the period of limitation for an application seeking initiation of CIRP under Section 7 of the Code 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 is default on the part of the corporate debtor, that is to say, that the right to apply under the Code accrues on the date when default occurs;
(f) that default referred to in the Code is that of actual non-payment by the corporate debtor when a debt has become due and payable; and
(g) that if default had occurred over three years prior to the date of filing of the application, the application would be time-barred save and except in those cases where, on facts, the delay in filing may be condoned; and
(h) an application under Section 7 of the Code is not for enforcement of mortgage liability and Article 62 of the Limitation Act does not apply to this application.
Whether Section 18 Limitation Act could be applied to the present case
# 32. …….. As noticed, in B.K. Educational Services, it has clearly been held that the limitation period for application under Section 7 of the Code is three years as provided by Article 137 of the Limitation Act, which commences from the date of default and is extendable only by application of Section 5 of Limitation Act, if any case for condonation of delay is made out.
# 33. Apart from the above and even if it be assumed that the principles relating to acknowledgement as per Section 18 of the Limitation Act are applicable for extension of time for the purpose of the application under Section 7 of the Code, in our view, neither the said provision and principles come in operation in the present case nor they enure to the benefit of respondent No. 2 for the fundamental reason that in the application made before NCLT, the respondent No. 2 specifically stated the date of default as ‘8.7.2011 being the date of NPA’. It remains indisputable that neither any other date of default has been stated in the application nor any suggestion about any acknowledgement has been made…………….In the variety of descriptions which could have been given by the applicant in the said Part- V of the application and even in residuary Point No. 8 therein, nothing was at all stated at any place about the so called acknowledgment or any other date of default.
# 33.1. Therefore, on the admitted fact situation of the present case, where only the date of default as ‘08.07.2011’ has been stated for the purpose of maintaining the application under Section 7 of the Code, and not even a foundation is laid in the application for suggesting any acknowledgement or any other date of default, in our view, the submissions sought to be developed on behalf of the respondent No. 2 at the later stage cannot be permitted. It remains trite that the question of limitation is essentially a mixed question of law and facts and when a party seeks application of any particular provision for extension or enlargement of the period of limitation, the relevant facts are required to be pleaded and requisite evidence is required to be adduced. Indisputably, in the present case, the respondent No. 2 never came out with any pleading other than stating the date of default as ‘08.07.2011’ in the application. That being the position, no case for extension of period of limitation is available to be examined. In other words, even if Section 18 of the Limitation Act and principles thereof were applicable, the same would not apply to the application under consideration in the present case, looking to the very averment regarding default therein and for want of any other averment in regard to acknowledgement.
# 34. …………. Needless to add that when the application made by the respondent No. 2 for CIRP is barred by limitation, no proceedings undertaken therein after the order of admission could be of any effect. All such proceedings remain non-est and could only be annulled.
# 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 application under Section 7 of the Code and hence, the application in question, made in the year 2018, is within limitation, is not even worth devoting much time. ………. There is nothing in the Code to even remotely indicate if the period of limitation for the purpose of an application under Section 7 is to commence from the date of commencement of the Code itself. Similarly, nothing provided in the Limitation Act could be taken as the basis to support the proposition so stated by the Appellate Tribunal.
# 36.1. ……… This approach of NCLAT was specifically disapproved by this Court in Sagar Sharma (supra) where, after observing that in B. K. Educational Services (supra) it had already been made clear that the date of the Code’s coming into force on 01.12.2016 was wholly irrelevant to the triggering of any limitation period for the purposes of the Code,
# 37. The other observations as made and the reasoning as adopted by the Appellate Tribunal in paragraphs 29 and 30 of the impugned order, that the property having been mortgaged, the claim is not barred by limitation because of the period of limitation of twelve years with regard to mortgaged property, had again been erroneous and do not stand in conformity with the dictum of this Court.
# 37.1. ……. When Article 137, being the residuary provision on the period of limitation for “other applications” is held applicable by this Court for the purpose of reckoning the period of limitation for an application under Section 7 of the Code, it remains rather inexplicable as to how the Appellate Tribunal could have applied any other Article of Limitation Act (and that too relating to suits) for the purpose of such an application?
# 38. The discussion foregoing leads to the inescapable conclusion that the application made by the respondent No. 2 under Section 7 of the Code in the month of March 2018, seeking initiation of CIRP in respect of the corporate debtor with specific assertion of the date of default as 08.07.2011, is clearly barred by limitation for having been filed much later than the period of three years from the date of default as stated in the application. The NCLT having not examined the question of limitation; the NCLAT having decided the question of limitation on entirely irrelevant considerations; and the attempt on the part of the respondents to save the limitation with reference to the principles of acknowledgment having been found unsustainable, the impugned orders deserve to be set aside and the application filed by the respondent No. 2 deserves to be rejected as being barred by limitation.
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