NCLAT held that the IBC claim was time-barred, as the default date was set by the recall notice, and no relief was granted from the OTS offers or SICA exclusions.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench led by Justice Ashok Bhushan (Chairperson) and Technical Members Mr. Barun Mitra and Mr. Arun Baroka reviewed an appeal and observed that a Section 7 application under the IBC is time-barred if the default occurred beyond the three-year limitation period, starting from the date of recall notice, and subsequent acknowledgements or recovery certificates cannot extend or reset the limitation unless falling within the statutory period under Article 137 of the Limitation Act.
The National Company Law Appellate Tribunal (NCLAT) addressed an appeal filed by a financial creditor against the order of the National Company Law Tribunal (NCLT), Mumbai Bench-I, which had dismissed a Section 7 application on the grounds of limitation. The financial creditor, IDBI Bank, had initiated the corporate insolvency process against Suman Motels Limited, claiming default. However, the NCLT held that the default occurred in 2001 when the loan was recalled, rendering the application filed in 2019 time-barred under the Limitation Act, 1963.
The facts revealed that IDBI had extended financial facilities to the corporate debtor between 1995 and 1998, issuing a recall notice in February 2001 for ₹17.52 crores. Legal proceedings began with the bank filing an application before the Debt Recovery Tribunal (DRT) in 2002. Concurrently, the corporate debtor sought protection under the Sick Industrial Companies Act (SICA). A recovery certificate was issued by the DRT in 2006, and although the corporate debtor made settlement proposals in 2008 and 2010, no resolution was achieved. The financial creditor later filed a Section 7 application under the Insolvency and Bankruptcy Code (IBC) in 2019, claiming a default amount of ₹65.71 crores. The debtor challenged this application, asserting that the default occurred in 2001, making the claim time-barred.
The NCLAT upheld the NCLT’s finding that the limitation period began with the 2001 recall notice. It concurred that the debtor’s proposals for a one-time settlement (OTS) did not constitute valid acknowledgement under Section 18 of the Limitation Act to extend the limitation period. Additionally, the Tribunal ruled that the financial creditor could not benefit from the exclusion of time under Section 22 of SICA, as the issuance of a recovery certificate by the DRT in 2006 ended the protective period.
The appellate tribunal analyzed whether the periods under Section 22(1) and 22(5) of SICA, relating to proceedings before the Board for Industrial and Financial Reconstruction (BIFR) and the Appellate Authority for Industrial and Financial Reconstruction (AAIFR), could be excluded for computing limitation. Relying on the Supreme Court's decision in Sabarmati Gas Limited v. Shah Alloys Limited, REEDLAW 2023 SC 01537, the NCLAT held that recovery proceedings under the RDDB Act fall within the ambit of Section 22(1). Accordingly, it excluded the periods from 2002 to 2006 (during the BIFR inquiry) and from 2006 to 2010 (when the appeal was pending before AAIFR). However, it denied exclusion of the period when a writ petition was pending before the High Court, as SICA protections were no longer available after 2013.
Despite recalculating the limitation period with some exclusions, the NCLAT concluded that the Section 7 application filed in 2019 was still time-barred. The issuance of the recovery certificate in 2006 and subsequent balance sheet acknowledgements were held insufficient to reset the limitation clock. Accordingly, the NCLAT dismissed the appeal, affirming the NCLT’s decision that the financial creditor's claim was time-barred under Article 137 of the Limitation Act.
Mr. Abhijeet Sinha Sr. Advocate with Mr. Anand Varma and Ms. Apoorva Pandey, Advocates represented the Appellant.
Mr. Sajeev Deora, Mr. Harsh Gurbani and Ms. Tripty Rajput, Advocates appeared for the Respondent.
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