Supreme Court (22.03.2021) in Sesh Nath Singh & Anr. Vs. Baidyabati Sheoraphuli Co-operative Bank Ltd. & Anr.[Civil Appeal No. 9198 of 2019] held that; -
Section 238A of the IBC makes the provisions of the Limitation Act, as far as may be, applicable to proceedings before the NCLT and the NCLAT. The IBC does not exclude the application of Section 6 or 14 or 18 or any other provision of the Limitation Act to proceedings under the IBC in the NCLT/NCLAT. All the provisions of the Limitation Act are applicable to proceedings in the NCLT/NCLAT, to the extent feasible.
We see no reason why Section 14 or 18 of the Limitation Act, 1963 should not apply to proceeding under Section 7 or Section 9 of the IBC.
In our considered opinion, the judgment of the NCLAT in the case of Ishrat Ali is unsustainable in law. The proceedings under the SARFAESI Act, 2002 are undoubtedly civil proceedings.
In our considered view, keeping in mind the scope and ambit of proceedings under the IBC before the NCLT/NCLAT, the expression ‘Court’ in Section 14(2) would be deemed to be any forum for a civil proceeding including any Tribunal or any forum under the SARFAESI Act.
Chronology of the events;
The Financial Creditor declared the account of the Corporate Debtor a Non Performing Asset (NPA) on 31st March 2013.
On or about 18th January 2014, the Financial Creditor issued notice to the Corporate Debtor under Section 13(2) of the SARFAESI Act, 2002
On 13th December 2014, the Financial Creditor issued a notice to the Corporate Debtor under Section 13(4)(a) of the SARFAESI Act, calling upon the Corporate Debtor to handover peaceful possession of the secured immovable assets as detailed in the schedule,
The Authorized Officer of the Financial Creditor issued a notice dated 24th December 2014, notifying the Corporate Debtor, the guarantors and the public in general, that the Authorized Officer of the Financial Creditor had taken possession of the secured assets of the Corporate Debtor, as specified in the Schedule to the said notice, on 24th December 2014, under Section 13(4) of the SARFAESI Act.
On 11th May 2017, the District Magistrate Hooghly issued an order under the SARFAESI Act for possession by the Financial Creditor of the assets of the Corporate Debtor hypothecated to the Financial Creditor.
On or about 10th July 2018, the Financial Creditor filed an application in the Kolkata Bench of NCLT for initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor under Section 7 of the IBC.
By an order dated 25th April 2019, the Kolkata Bench of NCLT admitted the application filed by the Financial Creditor under Section 7 of IBC,
Excerpts of the order;
# 17. Being aggrieved by the order dated 25th April, 2019 passed by the Kolkata Bench of NCLT, the Corporate Debtor filed an appeal before the NCLAT under Section 61 of the IBC, contending that the application filed by the Financial Creditor should not have been entertained, the same being barred by limitation.
# 18. It was only in appeal before the NCLAT, that the Corporate Debtor, for the first time contended, that the account of the Corporate Debtor had been declared NPA on 31st March, 2013 whereas the application under Section 7 of IBC had been filed on 27th August, 2018, after almost five years and five months from the date of accrual of the cause of action, and was therefore barred by limitation.
# 20. The NCLAT examined the issue of limitation and held that the Respondent had bona fide, within the period of limitation, initiated proceedings against the Corporate Debtor under the SARFAESI Act and was thus entitled to exclusion of time under Section 14(2) of the Limitation Act. The NCLAT, after exclusion of the period of about three years and six months till the date of the interim order of the High Court, during which the Financial Creditor had been proceeding
under SARFAESI Act, found that the application of the Financial Creditor, under Section 7 of the IBC, was within limitation. The appeal was accordingly dismissed.
# 24. Mr. Dave argued that the judgment and order under appeal was contrary to the law as declared by a larger Bench of the NCLAT in Company Appeal (AT) (Insolvency) No. 1121 of 2019 titled Ishrat Ali v. Cosmos Cooperative Bank Limited and Anr. , where the NCLAT held that in an application under Section 7 of the IBC, the applicant is not entitled to the benefit of Section 14 of the Limitation Act, 1963 in respect of proceedings under the SARFAESI Act.
# 25. In the aforesaid case, the NCLAT held:-
“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 Company Appeal (AT) (Insolvency) No. 1121 of 2019 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- Company Appeal (AT) (Insolvency) No. 1121 of 2019 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.”
# 30. Mr. Dave emphatically argued that the NCLT/NCLAT considering an application under Section 7 of the IBC, not being a forum for recovery of debt, Section 14 of the Limitation Act would not apply, as held by the larger Bench of NCLAT in Ishrat Ali’s case.
# 36. Section 6 of the IBC provides that, when any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process in respect of such corporate debtor, in such manner as provided in Chapter II of the IBC. The sine qua non for initiation of the corporate insolvency resolution process is the occurrence of default.
# 52. There can be no dispute with the proposition that the period of limitation for making an application under Section 7 or 9 of the IBC is three years from the date of accrual of the right to sue, that is, the date of default. In Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Ltd. And Anr., this Court held:-
“6. …...The present case being “an application” which is filed under Section 7, would fall only within the residuary Article 137.”
# 57. The issues involved in this appeal are:-
(i) Whether delay beyond three years in filing an application under Section 7 of IBC can be condoned, in the absence of an application for condonation of delay made by the applicant under Section 5 of the Limitation Act, 1963?
(ii) Whether Section 14 of the Limitation Act, 1963 applies to applications under Section 7 of the IBC? If so, is the exclusion of time under Section 14 is available, only after the proceedings before the wrong forum terminate?
# 65. As observed above, Section 238A makes the provisions of the Limitation Act applicable to proceedings under the IBC before the Adjudicating authority and the Appellate Authority (NCLAT) ‘as far as may be’. Section 14(2) of the Limitation Act which provides for exclusion of time in computing the period of limitation in certain circumstances, provides as follows:
“14. Exclusion of time of proceeding bona fide in court without jurisdiction. —
(1) …..
(2) 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.”
# 67. As observed above, Section 238A of the IBC makes the provisions of the Limitation Act, as far as may be, applicable to proceedings before the NCLT and the NCLAT. The IBC does not exclude the application of Section 6 or 14 or 18 or any other provision of the Limitation Act to proceedings under the IBC in the NCLT/NCLAT. All the provisions of the Limitation Act are applicable to proceedings in the NCLT/NCLAT, to the extent feasible.
# 68. We see no reason why Section 14 or 18 of the Limitation Act, 1963 should not apply to proceeding under Section 7 or Section 9 of the IBC. . . . . .
# 75. There can be little doubt that Section 14 applies to an application under Section 7 of the IBC. At the cost of repetition, it is reiterated that the IBC does not exclude the operation of Section 14 of the IBC. The question is whether prior proceedings under the SARFAESI Act do not qualify for the exclusion of time under Section 14, inasmuch as they are not civil proceedings in a Court, as argued by Mr. Dave.
# 77. Section 14 of the Limitation Act is to be read as a whole. A conjoint and careful reading of Sub-Sections (1), (2) and (3) of Section 14 makes it clear that an applicant who has prosecuted another civil proceeding with due diligence, before a forum which is unable to entertain the same on account of defect of jurisdiction or any other cause of like nature, is entitled to exclusion of the time during which the applicant had been prosecuting such proceeding, in computing of limitation. The substantive provisions of Sub-sections (1), (2) and (3) of Section 14 do not say that Section 14 can only be invoked on termination of the earlier proceedings, prosecuted in good faith.
# 87. In our view, since the proceedings in the High Court were still pending on the date of filing of the application under Section 7 of the IBC in the NCLT, the entire period after the initiation of proceedings under the SARFAESI Act could be excluded. If the period from the date of institution of the proceedings under the SARFAESI Act till the date of filing of the application under Section 7 of the IBC in the NCLT is excluded, the application in the NCLT is well within the limitation of three years. Even if the period between the date of the notice under Section 13(2) and date of the interim order of the High Court staying the proceedings under the SARFAESI Act, on the prima facie ground of want of jurisdiction is excluded, the proceedings under Section 7 of IBC are still within limitation of three years.
# 96. In our considered opinion, the judgment of the NCLAT in the case of Ishrat Ali is unsustainable in law. The proceedings under the SARFAESI Act, 2002 are undoubtedly civil proceedings.
# 101. In our considered view, keeping in mind the scope and ambit of proceedings under the IBC before the NCLT/NCLAT, the expression ‘Court’ in Section 14(2) would be deemed to be any forum for a civil proceeding including any Tribunal or any forum under the SARFAESI Act.
# 102. In any case, Section 5 and Section 14 of the Limitation Act are not mutually exclusive. Even in a case where Section 14 does not strictly apply, the principles of Section 14 can be invoked to grant relief to an applicant under Section 5 of the Limitation Act by purposively construing ‘sufficient cause’. It is well settled that omission to refer to the correct section of a statute does not vitiate an order. At the cost of repetition it is reiterated that delay can be condoned irrespective of whether there is any formal application, if there are sufficient materials on record disclosing sufficient cause for the delay.
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First of all I have not been able to understand as to how taking of the possession of the property and it's auction by the secured creditor can be equated with the proceedings before the court.
ReplyDeleteStatement of Objects and Reasons of the SARFAESI Act reads as follows;
………...These Committees, inter alia, have suggested enactment of a new legislation for securitisation and empowering banks and financial institutions to take possession of the securities and to sell them without the intervention of the court. Acting on these suggestions, the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Ordinance, 2002 was promulgated on the 21st June, 2002 to regulate securitisition and reconstruction of financial assets and enforcement of security interest and for matters connected therewith or incidental thereto. ………..