Limitation Bar on Section 7 IBC Applications Where Prior Valid DRT Proceedings Exist — Section 14 Limitation Act Inapplicable
- REEDLAW
- Oct 10
- 3 min read
REEDLAW Legal News Network reports: In a significant ruling, the National Company Law Appellate Tribunal (NCLAT), Principal Bench, clarified that Section 14 of the Limitation Act, 1963 cannot be invoked to extend the limitation period for filing a Section 7 application under the Insolvency and Bankruptcy Code, 2016 when the prior proceedings before the Debts Recovery Tribunal (DRT) were validly instituted and not defective for want of jurisdiction. The Tribunal held that such valid prior proceedings do not warrant exclusion of time under Section 14, rendering the Section 7 application time-barred and its dismissal by the Adjudicating Authority legally sound.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr. Arun Baroka (Technical Member), while adjudicating the Company Appeal, held that Section 14 of the Limitation Act cannot be invoked to extend the limitation period for a Section 7 IBC application where the earlier DRT proceedings were validly filed and not defective for want of jurisdiction. The Appellate Tribunal emphasised that only proceedings instituted before an incompetent forum qualify for exclusion under Section 14, and since the prior DRT case was within jurisdiction, the benefit of exclusion was unavailable, making the IBC application time-barred and rightly dismissed.
The appeal had been preferred against the order of the Adjudicating Authority rejecting a Section 7 application on the grounds that the disbursement of the claimed amount by the Appellant had not been proved and that the application was barred by limitation. The Appellant, a Financial Creditor, asserted that an amount of Rs. 46.16 Crores had been disbursed to the Corporate Debtor in 2013, with the date of default being 19.09.2015. Proceedings had been initiated under Section 19 of the Recovery of Debt and Bankruptcy Act, 1993, which remained pending. The Section 7 application was filed on 10.12.2019.
The Appellant relied on the NeSL certificate and supporting bank statements as proof of disbursement, also emphasising that no appearance or dispute to the debt had been made by the Corporate Debtor before the Adjudicating Authority. The Appellant argued that the limitation should be computed by considering deposits made in 2016 to the Corporate Debtor’s account, and alternatively, by claiming the benefit of Section 14 of the Limitation Act due to the pending DRT proceeding.
Upon consideration, the Tribunal found that the NeSL certificate and undisputed bank statements indeed substantiated the disbursement, and that the absence of the Corporate Debtor before the Adjudicating Authority indicated no contest to the same. However, regarding limitation, it was held that deposits made in 2016 did not extend the limitation period in favour of the Appellant, as the Section 7 application was filed beyond three years from the date of the last relevant deposit.
As to the invocation of Section 14 of the Limitation Act, the Tribunal noted that the benefit available in Sesh Nath Singh and Another v. Baidyabati Sheoraphuli Co-operative Bank Limited and Another, REEDLAW 2021 SC 03007 was predicated on proceedings initiated in a court or forum without jurisdiction, which led to exclusion of the period spent in such proceedings from the computation of limitation. In the present case, since the DRT proceeding was properly instituted and there was no defect of jurisdiction or similar impediment, the benefit under Section 14 could not be extended to the Appellant.
Accordingly, the Tribunal held that the application under Section 7 of the Insolvency and Bankruptcy Code was rightly dismissed as time-barred and lacking sufficient grounds for the application of Section 14 of the Limitation Act, and thus dismissed the appeal.
Mr. Rajesh Kumar Gautam, Mr. Deepanjal Choudhary, Mr. Azal Aekram, and Ms. Likivi Jakhalu, Advocates, represented the Appellant.
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