The Supreme Court Bench comprising Justices Indira Banerjee and J.K. Maheshwari was hearing an interesting issue of limitation in an Appeal. The Bench held that the Proceedings in good faith in a forum which lacks jurisdiction or is unable to entertain for like nature may save limitation. In the present case, the Madras High Court neither suffered from any defect of jurisdiction to entertain the winding up application nor was unable to entertain the winding up application for any other cause of a like nature.
The present Appeal filed under Section 62 of the Insolvency and Bankruptcy Code, 2016 against the order passed by the National Company Law Appellate Tribunal, New Delhi allowing the Company Appeal filed by the Respondent and setting aside an order dated 2nd January 2019 passed by the Adjudicating Authority, whereby the Adjudicating Authority had dismissed an application filed by the Respondent as barred by limitation.
Pursuant to an agreement executed by and between the Appellant and the Respondent, the Respondent let out on hire to the Appellant, a 150 MT crane for the erection of equipment at the site of Indian Oil Corporation Ltd. (IOCL) at Paradip in Odisha. The Respondent/ Operational Creditor raised invoices on the Appellant between 3rd January 2012 and 4th March 2013 for a sum of Rs.38,84,709/-.
Ultimately, on 14th October 2013, the Respondent issued a statutory notice to the Appellant under Sections 433(e), 434 and 439 of the Companies Act, 1956 for Winding Up of the Appellant-Company. The Appellant duly replied to the notice on 7th November 2013, acknowledging its liability to the Respondent.
On 22nd December 2015, the Respondent filed a Winding Up petition dated 4th July 2015 in the Madras High Court. On 5th January 2016, the High Court returned the Winding Up petition to the Respondent for the curing of defects. The Winding Up petition was represented on 3rd February 2016 but again returned on 24th May 2016 with an endorsement to comply with the defects as intimated earlier.
The IBC came into force on 1st December 2016. Thereafter the Respondent issued a demand notice on 14th November 2017 under Section 8(1) calling upon the Appellant to repay its dues.
On 30th March 2018, the Respondent filed a petition under Section 9 of the IBC for initiation of the CIRP in the NCLT. On 20th June 2018, the Adjudicating Authority directed the Registry to issue notice to the Appellant.
By an order dated 2nd January 2019, the Adjudicating Authority rejected the application as barred by limitation, placing reliance on the judgment of this Court in B.K. Educational Services Pvt. Ltd. vs. Parag Gupta and Associates, REED 2018 SC 10542. The application under Section 9 of the IBC was accordingly dismissed.
The Respondent appealed to the NCLAT under Section 61 of the IBC. By the impugned judgment and order, the NCLAT has set aside the order dated 2nd January 2019 passed by the Adjudicating Authority rejecting the application of the Respondent under Section 9 of the IBC and has remitted the case to the Adjudicating Authority for admission after notice to the parties.
For the purpose of limitation, the relevant date was the date on which the right to sue accrues which is the date when a default occurs. It is well settled by a plethora of judgments of the Apex Court and different High Courts and, in particular, the judgment of the Supreme Court in B.K. Educational Services Pvt. Ltd. vs. Parag Gupta and Associates, REED 2018 SC 10542 that the NCLT/NCLAT has the discretion to entertain an application/appeal after the prescribed period of limitation. The condition precedent for the exercise of such discretion is the existence of sufficient cause for not preferring the appeal and/or the application within the period prescribed by limitation.
When an appeal is filed against an order rejecting an application on the ground of limitation, the onus is on the Appellant to make out the sufficient cause for the delay in filing the application. The date of enforcement of the IBC and/ or the date on which an application could have first been filed under the IBC is not relevant in the computation of limitation. It would be absurd to hold that the CIRP could be initiated by filing an application under Section 7 or Section 9 of the IBC, within three years from the date on which an application under those provisions of the IBC could have first been made before the NCLT even though the right to sue may have accrued decades ago.
The fact that an application for initiation of CIRP may have been filed within three years from the date of enforcement of the relevant provisions of the IBC is inconsequential. What is material is the date on which the right to sue accrues, and whether the cause of action continues. The pendency of the proceedings in a parallel forum, invoked by the Respondent, is not sufficient cause for the delay in filing an application under Section 9 of the IBC. By the time the application was filed, the claim had become barred by limitation.
From the averments in the Winding Up petition, it was patently clear that there was no acknowledgement of liability after 7th November 2013. The last payment was made in June 2013.
It is now well settled that the provisions of the Limitation Act are applicable to proceedings under the IBC as far as may be. Section 14(2) of the Limitation Act provides for the exclusion of time in computing the period of limitation in certain circumstances. Similarly, under Section 18 of the Limitation Act, an acknowledgement of 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, has the effect of commencing a fresh period of limitation, from the date on which the acknowledgement is signed. However, the acknowledgement must be made before the period of limitation expires.
Proceedings in good faith in a forum which lacks jurisdiction or is unable to entertain for like nature may save limitation. Similarly, acknowledgement of liability may have the effect of commencing a fresh period of limitation. In the present case, the last acknowledgement was in 2013 and the Madras High Court neither suffered from any defect of jurisdiction to entertain the winding up application nor was unable to entertain the winding up application for any other cause of a like nature.
The limitation for initiation of winding-up proceedings in the Madras High Court stopped running on the date on which the Winding Up petition was filed. The initiation of proceedings in Madras High Court would not save limitation for initiation of proceedings for initiation of CIRP in the NCLT under Section 7 of the IBC. A claim may not be barred by limitation. It is the remedy for the realisation of the claim, which gets barred by limitation. The impugned order of the NCLAT was unsustainable in law.
The appeal was allowed. The impugned order of the NCLAT was set aside.