Case Note & Summary
The Supreme Court allowed the appeal filed by Babulal Vardharji Gurjar, a director of Veer Gurjar Aluminium Industries Pvt. Ltd., against the order of the National Company Law Appellate Tribunal (NCLAT) which had upheld the admission of a Section 7 application under the Insolvency and Bankruptcy Code, 2016 (IBC) by JM Financial Assets Reconstruction Company Pvt. Ltd., the financial creditor. The corporate debtor had defaulted on loans from a consortium of banks, and its account was classified as Non-Performing Asset (NPA) on 08.07.2011. The financial creditor, as assignee of the debt, filed an application under Section 7 IBC on 21.03.2018, seeking initiation of Corporate Insolvency Resolution Process (CIRP). The NCLT admitted the application, and NCLAT dismissed the appeal, holding that the application was within limitation because the IBC came into force on 01.12.2016 and because mortgage security provided a twelve-year limitation period under Article 61(b) of the Limitation Act, 1963. The Supreme Court framed the issue of whether the application was barred by limitation. The Court held that the limitation for a Section 7 application is governed by Article 137 of the Limitation Act, which provides a three-year period from the date of default, which is the date of NPA classification (08.07.2011). The application filed in March 2018 was beyond three years and thus barred. The Court rejected the argument that acknowledgment of debt in balance sheets extends limitation, as Section 18 of the Limitation Act does not apply to IBC proceedings. The Court also rejected the argument based on mortgage security, as the IBC application is not a suit to enforce a mortgage. The Supreme Court set aside the orders of NCLAT and NCLT and dismissed the Section 7 application as barred by limitation.
Headnote
A) Insolvency and Bankruptcy Code - Limitation - Section 7 IBC - Article 137 Limitation Act - The application under Section 7 IBC is governed by Article 137 of the Limitation Act, 1963, providing a three-year limitation period from the date of default. The date of default is the date of classification of the account as Non-Performing Asset (NPA). In this case, the NPA date was 08.07.2011, and the application was filed in March 2018, beyond three years, hence barred by limitation. (Paras 6-10) B) Limitation Act - Acknowledgment of Debt - Section 18 Limitation Act - Acknowledgment of debt in balance sheets does not extend the limitation period for filing an application under Section 7 IBC. The principle of acknowledgment under Section 18 applies to suits and applications under the Limitation Act, but not to IBC proceedings where the limitation is computed from the date of default. (Paras 11-15) C) Limitation Act - Mortgage Security - Article 61(b) Limitation Act - The provision of a twelve-year limitation period for suits to enforce mortgage security under Article 61(b) of the Limitation Act does not apply to applications under Section 7 IBC. The IBC application is not a suit to enforce a mortgage but a proceeding for initiation of CIRP, governed by Article 137. (Paras 16-20)
Issue of Consideration
Whether the application filed by the financial creditor under Section 7 of the Insolvency and Bankruptcy Code, 2016, seeking initiation of Corporate Insolvency Resolution Process, is barred by limitation.
Final Decision
Supreme Court allowed the appeal, set aside the orders of NCLAT and NCLT, and dismissed the Section 7 application as barred by limitation.
Law Points
- Limitation for application under Section 7 IBC is governed by Article 137 of Limitation Act
- 1963
- three years from date of default
- acknowledgment of debt under Section 18 of Limitation Act does not extend limitation for IBC applications
- date of default is date of NPA classification
- mortgage security does not provide twelve-year limitation for IBC applications.
