Section 7 IBC Application Time-Barred: Pendency of DRT Proceedings Does Not Attract Section 14 Limitation Benefit
- REEDLAW
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REEDLAW Legal News Network reports: In a significant ruling on limitation under the Insolvency and Bankruptcy Code, 2016, the Appellate Tribunal held that a financial creditor cannot invoke insolvency proceedings beyond the prescribed limitation period merely on the basis of pending recovery proceedings. The Tribunal clarified that exclusion of time under Section 14 of the Limitation Act is not automatic and can be invoked only where prior proceedings failed due to lack of jurisdiction or a similar legal defect.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr. Arun Baroka (Technical Member), while adjudicating a Company Appeal, held that a Section 7 application under the Insolvency and Bankruptcy Code, 2016, was barred by limitation when filed beyond three years from the date of default. The Tribunal further held that the pendency of recovery proceedings before the Debts Recovery Tribunal did not attract exclusion of time under Section 14 of the Limitation Act, 1963, in the absence of any jurisdictional defect, notwithstanding proof of disbursement of the loan amount.
The Appellate Tribunal examined an appeal challenging the rejection of a Section 7 application filed by the Appellant, which had been dismissed by the Adjudicating Authority on the grounds of non-proof of disbursement and limitation. The Appellant had asserted that financial assistance amounting to a substantial sum was disbursed to the Corporate Debtor in 2013 and that default occurred in September 2015. It was noted that recovery proceedings under Section 19 of the Recovery of Debt and Bankruptcy Act, 1993, had been initiated in 2016 and were pending, while the insolvency application under the Insolvency and Bankruptcy Code, 2016, was filed in December 2019. The Corporate Debtor did not appear before the Adjudicating Authority to dispute the claim.
On the issue of disbursement, the Tribunal observed that documentary material, including the NeSL certificate and bank statements placed on record, sufficiently evidenced the financial disbursement by the Appellant. Since the debt was not disputed and the Corporate Debtor had remained absent, the Tribunal held that the finding of the Adjudicating Authority regarding the absence of disbursement was unsustainable.
However, on the question of limitation, the Tribunal held that the Section 7 application was filed beyond the prescribed three-year period from the date of default. The deposits relied upon by the Appellant during 2016 were found insufficient to extend the limitation, as one deposit fell outside the limitation window and the other was merely a cash deposit without material to establish acknowledgement of liability under the Limitation Act. The Tribunal further rejected the contention that the Appellant was entitled to exclusion of time under Section 14 of the Limitation Act on account of pending recovery proceedings before the DRT, holding that such proceedings were not shown to be without jurisdiction or vitiated by a defect of like nature.
While considering reliance placed on Sesh Nath Singh and Another v. Baidyabati Sheoraphuli Co-operative Bank Limited and Another, REEDLAW 2021 SC 03007, the Tribunal distinguished the said decision, noting that the benefit of Section 14 had been granted therein due to bona fide prosecution of proceedings that were prima facie without jurisdiction. In contrast, the recovery proceedings relied upon by the Appellant were competent proceedings for recovery and did not attract the principles of Section 14. Consequently, the Tribunal affirmed that the Section 7 application was barred by limitation and upheld the rejection of the insolvency application, finding no merit in the appeal.
Mr. Rajesh Kumar Gautam, Mr. Deepanjal Choudhary, Mr. Azal Aekram, and Ms. Likivi Jakhalu, Advocates, represented the Appellant.
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