NCLAT Confirms Three-Year Limitation for Section 95 IBC Applications from Recovery Certificate Date, Upholding Dismissal of Time-Barred Claims
- REEDLAW
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REEDLAW Legal News Network reports: In a pivotal ruling, the National Company Law Appellate Tribunal (NCLAT) affirmed that applications under Section 95 of the Insolvency and Bankruptcy Code, 2016, must be filed within a strict three-year period from the date of issuance of the recovery certificate, in accordance with Article 137 of the Limitation Act. The Tribunal clarified that the extended twelve-year limitation applicable to suits is not relevant to insolvency proceedings, thereby upholding the dismissal of applications filed beyond the prescribed period.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, comprising Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member), while adjudicating a batch of two Company Appeals, reiterated that the limitation period for filing Section 95 applications under the Insolvency and Bankruptcy Code, 2016, commences from the date of issuance of the recovery certificate and is confined to three years under Article 137 of the Limitation Act. The Bench held that applications filed beyond this period are barred by limitation, rejecting the contention that the twelve-year limitation for suits could be applied to insolvency matters.
The National Company Law Appellate Tribunal (NCLAT), Principal Bench, dismissed the appeals filed by the Financial Creditor challenging the National Company Law Tribunal (NCLT), Indore Special Bench’s orders rejecting Section 95 applications against the personal guarantors of the Corporate Debtor. The Financial Creditor had extended credit facilities to the Corporate Debtor, with the Respondents standing as personal guarantors who had executed guarantees in favour of the creditor. The Corporate Debtor defaulted in repayment, leading to classification as a Non-Performing Asset (NPA), followed by the invocation of guarantees, filing of recovery proceedings before the Debts Recovery Tribunal (DRT), and issuance of recovery certificates.
The Financial Creditor filed Section 95 applications under the Insolvency and Bankruptcy Code, 2016 (IBC) after the issuance of recovery certificates. The Adjudicating Authority rejected the applications as barred by limitation, holding that the three-year limitation period prescribed under Article 137 of the Limitation Act ran from the date of the recovery certificate, which had expired prior to the filing date, even after considering the Supreme Court’s extension of limitation due to Suo Moto WP (Civil) No. 3 of 2022. The Financial Creditor appealed, contending reliance on a recent Supreme Court judgment, which was argued to extend the limitation to 12 years for such applications.
The NCLAT examined the Supreme Court judgment in detail and clarified that the limitation for filing an application under Sections 7 or 95 of the IBC is strictly three years from the date of issuance of the recovery certificate as per Article 137 of the Limitation Act, reaffirming precedents such as Kotak Mahindra Bank Limited v. A. Balakrishnan and Another, REEDLAW 2022 SC 05561 and Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Limited and Another, REEDLAW 2019 SC 09502. The tribunal emphasised that while recovery certificates amount to a deemed decree, limitation for initiating insolvency proceedings under IBC cannot be extended beyond three years, and the 12-year limitation under Article 62 applies only to suits and not to insolvency applications. It further noted that the Section 95 applications filed by the Financial Creditor were beyond the prescribed limitation period.
Consequently, the NCLAT upheld the NCLT’s orders dismissing the Section 95 applications as time-barred and dismissed the appeals. The tribunal found no merit in the Financial Creditor’s submissions, reinforcing that limitation periods under the IBC must be strictly adhered to, and applications filed beyond the statutory timeline cannot be entertained.
Mr. Vaibhav Gaggar and Mr. Shreedhar Gaggar, Advocates, represented the Appellant.
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