Babulal Vardharji Gurjar Versus Veer Gurjar Aluminium Industries Pvt. Ltd. & Anr.

Court / Forum : Supreme Court of India
Citation : 2020 SCC OnLine SC 647
Coram : Justice A.M. Khanwilkar and Justice Dinesh Maheshwari
Subject : Section 7 of the Insolvency and Bankruptcy Code, 2016 |Section 18 of the Limitation Act, 1963
Date of Decision : August 14, 2020

Brief Facts

• The Appellant is the director of Veer Gurjar Aluminium Industries Pvt. Ltd. (“Corporate Debtor”) and has preferred the appeal against the order of NCLAT.
• The NCLAT held that the application made under Section 7 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) by JM Financial Assets Reconstruction Company Pvt. Ltd. (“Financial Creditor”) for the initiation of corporate insolvency resolution process (“CIRP”) of the Corporate Debtor is not barred by limitation.
• The NCLAT further declined to interfere with the order of NCLT, Mumbai Bench which admitted the application filed by the Financial Creditor and held that the Corporate Debtor having mortgaged property against the loan amount, the limitation period of twelve years is available for the claim made by the Financial Creditor as per Article 61 (b) of the Limitation Act, 1963 (“Limitation Act”).

Issues

1. Whether Section 18 of the Limitation Act extends the period of limitation under IBC on any acknowledgment of debt by Corporate Debtor?

Decision

• TThe Bench while deciding the issue summarised the principles laid down in a catena of judgments which dealt with the operation of law of limitation over insolvency proceedings and held as follows:

  “…(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.”

• The Bench rejected the contention of the Financial Creditor that the application is within limitation as the Corporate Debtor has continuously admitted its liability in its audited balance sheets until the year 2017.
• The Bench held that the principles relating to acknowledgement of debt as per Section 18 of the Limitation Act are not applicable for extension of time for the purpose of the application under Section 7 of the IBC.
• It was further observed that reference to Section 18 of the Limitation Act, in paragraph 21 of the decision in Jignesh Shah and Anr. v. Union of India 2019 SCC Online 1254 prima facie appear to be only in relation to the suit or other proceedings, and not insolvency proceedings.
• Thus, the Bench concluded while allowing the Appeal that even if Section 18 is applicable, the same does not enure to the benefit of the Financial Creditor in the present case, as no foundation was laid in the application for suggesting acknowledgment of debt.