A question that arises is whether the provisions of the Limitation Act can apply to the Code? An answer to this question is given under s.238A of the Code which was incorporated in the Code by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 with effect from 6th June, 2018. It states that the provisions of the Limitation Act, 1963 shall, as far as may be, apply to the proceedings or appeals under the Code filed before the National Company Law Tribunal / National Company Law Appellate Tribunal / the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, as the case may be. Thus, it is very clear that the Act’s provisions apply to claims filed under the Code.
The decision of the Apex Court in Sesh Nath Singh & Anr. vs. Baidyabati Sheoraphuli Co-operative Bank Ltd. & Anr. [LSI-179-SC-2021(NDEL)] has held that there is no specific period of limitation prescribed in the Limitation Act, 1963 for an application under the Code before the NCLT. Accordingly, an application for which no period of limitation is expressly provided under the Act, is governed by Article 137 of the Schedule to the Limitation Act. Under Article 137 of the Schedule to the Limitation Act, the period of limitation prescribed for such an application is three years from the date of accrual of the right to apply. It held that the provisions of the Limitation Act applied mutatis mutandis to proceedings under the IBC in the NCLT/NCLAT. It also held that the words ‘as far as may be’ found in s.238A were to be understood in the sense in which they best harmonised with the subject matter of the legislation and the object which the Legislature had in view. The Courts would not give an interpretation to those words, which would frustrate the purposes of making the Limitation Act applicable to proceedings in the NCLT / NCLAT.
In Gaurav Hargovindbhai Dave vs. Asset Reconstruction Co. (India) Ltd. [2019] 109 taxmann.com 395 (SC), it was held:—
‘6. ……The present case being “an application” which is filed under Section 7, would fall only within the residuary Article 137.’
In Jignesh Shah vs. Union of India [2019] 156 SCL 542 (SC) the Court established the proposition that the period of limitation for making an application under Section 7 or 9 of the Code was three years from the date of accrual of the right to sue, i.e., the date of default.
In B.K. Educational Services (P.) Ltd. vs. Parag Gupta [2018] 98 taxmann.com 213 (SC), the Supreme Court held:—
‘……“The right to sue”, therefore, accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of the Limitation Act, save and except in those cases where, in the facts of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such application.’
Again in Sesh Nath Singh (supra), it was held that it was well settled that the NCLT/NCLAT has the discretion to entertain an application/appeal after the prescribed period of limitation. The condition precedent for exercise of such discretion was the existence of sufficient cause for not preferring the appeal and/or the application within the period prescribed by limitation. Section 5 of the Limitation Act, 1963 enables this extension. That section enables a Court to admit an application or appeal if the applicant or the appellant, as the case may be, satisfied the Court that he had sufficient cause for not making the application and/or preferring the appeal within the time prescribed.
EXCLUDE TIME BEFORE WRONG FORUM
Part III of the Limitation Act lays down the manner of computation of the period of limitation. An important provision in this respect is laid down in s.14 of the Act. It states that in computing the period of limitation for any suit the time during which the plaintiff has launched civil proceedings in another Court, then such time shall be excluded provided that those proceedings relate to the same matter have been launched in good faith in a Court which cannot entertain it since it has no jurisdiction to do so. In other words, if the first Court did not have jurisdiction to entertain the plea and if such plea was filed by the plaintiff in good faith, then the time taken for such plea would be excluded in computing the period of limitation. In Commissioner, M.P. Housing Board vs. Mohanlal & Co. [2016] 14 SCC 199, it was held that s.14 of the Limitation Act had to be interpreted liberally to advance the cause of justice. S.14 would be applicable in cases of mistaken remedy or selection of a wrong forum. The Supreme Court in Sesh Nath Singh (supra) has held that:
‘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 ….’
Again in Dena Bank vs. C Shivakumar Reddy [2021] 129 taxmann.com 60 (SC) it was held that that default in payment of a debt triggered the right to initiate the Corporate Resolution Process. A Petition under Section 7 or 9 of the Code was required to be filed within the period of limitation prescribed by law, which would be three years from the date of default by virtue of Section 238A of the Code read with Article 137 of the Schedule to the Limitation Act.
EXCLUSION OF PROCEEDINGS UNDER SARFAESI ACT
Another legislation with similar objectives as the Code is the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (“SARFAESI Act”). The SARFAESI Act also provides mechanisms for the recovery of debts by banks and financial institutions. This Act enables secured creditors to take possession of secured assets without going to Court.
In the case of Sesh Nath Singh (supra), the bank had resorted to action under the SARFAESI Act in respect of a loan default by a debtor. This debtor challenged this action by filing a Writ Petition before the Court and the Court granted an interim stay. While the Writ was pending, the bank filed a claim under the Code against the corporate debtor. This action was challenged by the corporate debtor contending that the NCLT should not have entertained the application filed by the financial creditor as the same was barred by the period of limitation. This issue reached the Supreme Court. Hence, the moot point before the Supreme Court was whether prior proceedings under the SARFAESI Act qualified for the exclusion of time under Section 14 of the Limitation Act since they were not civil proceedings before a Court?
Upholding the exclusion of time spent under SARFAESI, the Supreme Court held that it was wrong to say that s.14 could never be invoked until and unless the earlier proceedings had actually been terminated for want of jurisdiction or other cause of such nature. It held that s.14 excluded the time spent in proceeding in a wrong forum, which was unable to entertain the proceedings for want of jurisdiction or other such cause. Where such proceedings had ended, the outer limit to claim exclusion under Section 14 would be the date on which the proceedings ended. The Court observed that in the case on hand, the proceedings under the SARFAESI Act had not been formally terminated. The High Court stayed the proceedings by an interim order. The writ petition was not disposed of even after almost four years. The carriage of proceedings was with the Corporate Debtor. The interim order was still in force, when proceedings under Section 7 of the IBC were initiated, as a result of which the Financial Creditor was unable to proceed further under the SARFAESI Act.
Accordingly, it concluded that since the proceedings in the High Court were still pending on the date of filing of the application under s.7 of the Code 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 s.7 of the Code in the NCLT was excluded, the application in the NCLT was well within the limitation of three years. Even if the period between the date of the notice under SARFAESI and the date of the interim order of the High Court staying the proceedings was excluded, the proceedings under Section 7 of IBC were still within limitation of three years.
It also held that the proceedings under the SARFAESI Act, 2002 were undoubtedly civil proceedings. There was no rationale for the view that the proceedings initiated by a secured creditor against a borrower under the SARFAESI Act for taking possession of its secured assets were intended to be excluded from the category of civil proceedings. Even though the SARFAESI Act enabled a secured creditor to enforce the security interest created in its favour, without the intervention of the Court, it did not exclude the intervention of Courts and/or Tribunals altogether. Hence, the Court held that keeping in mind the scope and ambit of proceedings under the Code before the NCLT / NCLAT, the expression ‘Court’ in s. 14 of the Limitation Act would be deemed to include any forum for a civil proceeding including any Tribunal or any forum under the SARFAESI Act.
EXCLUSION OF ACKNOWLEDGEMENT BY DEBTOR
Another important provision while computing the limitation period is s.18 of the Limitation Act. This states that if an acknowledgement of liability has been made in writing signed by the debtor against whom such property or right is claimed, a fresh period of limitation shall be computed from the time when the acknowledgement was so signed.
In Dena Bank vs. C Shivakumar Reddy [2021] 129 taxmann.com 60 (SC), the Apex Court, while explaining the essence of this provision held that as per s.18 of Limitation Act, an acknowledgement of a present subsisting liability, made in writing in respect of any right claimed by the opposite party and signed by the party against whom the right is claimed, had the effect of commencing a fresh period of limitation from the date on which the acknowledgement is signed. Such an acknowledgement need not be accompanied by a promise to pay expressly or even by implication. However, the acknowledgement must be made before the relevant period of limitation has expired. It further held that even if the writing containing the acknowledgement was undated, evidence might be given of the time when it was signed. An acknowledgement may be sufficient even though it was accompanied by refusal to pay, deliver, perform or permit to enjoy or was coupled with claim to set off, or was addressed to a person other than a person entitled to the property or right. The term ‘signed’ was to be construed to mean signed personally or by an authorised agent.
In Sesh Nath Singh (supra), the Court held that the Code did not exclude the application of s.18 or any other provision of the Limitation Act. Again, in Laxmi Pat Surana vs. Union Bank of India & Anr. [LSI-176-SC-2021(NDEL)], the Supreme Court held that there was no reason to exclude the effect of Section 18 of the Limitation Act to proceedings initiated under the IBC.
The issue before the Apex Court in Dena Bank (supra) was whether an offer for one-time settlement signed by the debtor would lead to an exclusion of time under s.18? The Court held that it saw no reason why an Offer of One-Time Settlement of a live claim, made within the period of limitation, should not also be construed as an acknowledgement to attract Section 18 of the Limitation Act. To sum up, an application under s.7 of the IBC would not be barred by limitation, on the ground that it had been filed beyond a period of 3 years from the date of declaration of the loan account of the Corporate Debtor as a Non Performing Asset, if there was an acknowledgement of the debt by the Corporate Debtor before expiry of the period of limitation of 3 years, in which case the period of limitation would get extended by a further period of 3 years.
CONCLUSION
Thus, it is clear that the Limitation Act applies with all its exclusions, even to the Code. Courts are very quick to support this principle and would be wary in holding otherwise.
