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the article is about applicability of limitation act on insolvency and bankruptcy code and is based upon the recent judgment of the National company Law Appellate Tribunalc

Applicability of Limitation Act On Insolvency And Bankruptcy Code

Summary:
This article is about the applicability of limitation act on insolvency and bankruptcy code, 2016. It is primarily based on the analysis of the recent judgment of the Hon’ble NCLAT i.e.M/s. Speculum Plast Pvt. Ltd. Vs. PTC Techno Pvt. Ltd., Parag Gupta & Associates Vs. B.K. Educational Services Pvt. Ltd., Ashlay Infrastructure Pvt. Ltd. Vs. LDS Engineers Pvt. Ltd. wherein the common question was whetherlimitation act is applicable for triggering the Corporate Insolvency Resolution Process under Insolvency & Bankruptcy Code, 2016 as in these similar cases, the creditor filed an application either under section 7 or 9 of I&B Code, 2016 before NCLT for initiating the insolvency resolution process after the period of 3 years. This question is of much importance because, if limitation act would be made applicable, then the creditor shall have no right of initiating the resolution process against the debtor after the period of 3 years. However, the same has now been settled by the Appellate Tribunal.

Applicability of Limitation Act On Insolvency & Bankruptcy Code

1.Introduction
Any new advancement, be it in the field of law or any other form of art or science, would require time as it is to be understood, accepted, settled and interpreted. The new legal framework on insolvency and bankruptcy has brought a catena of changes in the prior existent law. To understand it all, it is to be interpreted by our Hon’ble Judges of NCLT, NCLAT and Supreme Court, veteran lawyers and amicus curiae. One of the major issue which is doing round these days is the issue of applicability of Limitation Act, 1963 on I&B Code, 2016. To understand this issue we need to look into the case laws in which this issue arose but was only settled by NCLAT in following cases wherein a common judgment was passed:
i. M/s. Speculum Plast Pvt. Ltd. Vs. PTC Techno Pvt. Ltd.,
ii. Parag Gupta & Associates Vs. B.K. Educational Services Pvt. Ltd.,
iii. Ashlay Infrastructure Pvt. Ltd. Vs. LDS Engineers Pvt. Ltd.

However, Hon’ble Supreme Court may reverse the precedent laid by NCLAT in the above mentioned matters.

2. I&B Code, 2016 Is A “Self Contained” Code:

One of the question that arose before NCLT & NCLAT was whether limitation act is applicable for triggering the Corporate Insolvency Resolution Process under Insolvency & Bankruptcy Code, 2016 as the creditors were filing applications either under section 7 or 9 of I&B Code, 2016 before NCLT for initiating the insolvency resolution process which was after the period of 3 years and if limitation act would be made applicable then the creditor shall have no right of initiating the resolution process against the debtor in such cases. To answer it, the NCLT was of the view that the limitation act would be applicable to I&B Code,2016 as the person who sleeps over his rights has no right to claim it later. In the case before the principal bench it was held that several amendments made in the companies’ act, 2013 shall be applicable to the I&B Code, 2016 as per section 255 of the code and these have specifically been mentioned in the 11thschedule. It was also held that though applicability of section 433 of the companies’ act has not been mentioned specifically but, it can also not be denied that there is no specific bar on its applicability. Therefore, NCLT reached this conclusion that, limitation act shall be made applicable to the insolvency proceedings. However, the decision of NCLAT wherein there was no mention of specific applicability or inapplicability of the limitation act, but there was a hint that limitation act would not be applicable to the I&B Code, 2016 as it was the observation of the tribunal thatI & B Code, 2016 is not an Act for recovery of money claim, it relates to initiation of Corporate Insolvency Resolution Process. However, NCLAT’s view is a much broader one on this issue, one of major concern before NCLAT was that if the code is complete in itself and is a “self-contained”, “special code” then application of limitation act would mean going against the general rule which has already been laid down in catena of cases before the Hon’ble Supreme Court. In a case before the supreme court the following proposition was laid down:
It is well settled that amendments to a petition in a civil proceeding and the addition of parties to such a proceeding are generally possible subject to the law of limitation. But an election petition stands on a different footing. The trial of such a petition and the powers of the court in respect thereof are all circumscribed by the Act. The Indian Limitation Act of 1963 is an Act to consolidate and amend the law of limitation of suits and other proceedings and for purposes connected therewith. The provisions of this Act will apply to all civil proceedings and some special criminal proceedings which can be taken in a court of law unless the application thereof has been excluded by any enactment: the extent of such application is governed by Section 29(2) of the Limitation Act. In our opinion however the Limitation Act cannot apply to proceedings like an election petition inasmuch as the Representation of the People Act is a complete and self-contained code which does not admit of the introduction of the principles or the provisions of law contained in the Indian Limitation Act.In this above mentioned case the question before the apex court was whether limitation act would be made applicable to the representation of the People Act, wherein, it was held that since the act is complete and self-contained in itself therefore the limitation act cannot be made applicable to it. The similar view was taken in the case of CCE & Customs Vs. Hongo India (P) Ltd.

In the case of L.S. Synthetics Ltd. v. Fairgrowth Financial Services Ltd. the Apex court held:
38.A Special Court having regard to its nature and functions may be a court within the meaning of Section 3 of the Indian Evidence Act, 1872 or Section 3 of the Limitation Act, 1963 but having regard to its scope and object and in particular the fact that it is a complete code in itself, in our opinion, the period of limitation provided in the Schedule appended to the Limitation Act, 1963, will have no application.

In the following matters wherein the similar issue of limitation arose before NCLAT:
i) M/s. Speculum Plast Pvt. Ltd. Vs. PTC Techno Pvt. Ltd.,
ii) Parag Gupta & Associates Vs. B.K. Educational Services Pvt. Ltd.,
iii) Ashlay Infrastructure Pvt. Ltd. Vs. LDS Engineers Pvt. Ltd.,

the NCLAT took the view by passing a common judgment, that I&B Code, 2016 is a self-contained, special code which would mean that no other act can be made applicable to the code and Limitation Act, 1963 is no exception to the same. To help the appellate tribunal reach this conclusion the counsel for the appellant referred to the report of “Bankruptcy Law Reform Committee” wherein the finding was that the intent of the legislature was to formulate a single law, independent of any other law including limitation act, 1963.The view taken by NCLAT that I&B Code is complete in itself has already been taken in the case Innoventive before the Hon’ble Supreme Court. Therefore, it is a settled law that I&B Code is complete in itself.

3. Express Exclusion of Limitation Act, 1963

Section 29(2) of the limitation Act, 1963 provides that there shall be express exclusion of the application of limitation act on special laws in matters where no period of limitation is prescribed. However, nowhere in the I&B Code, 2016 the application of limitation Act, has been excluded. Also, as per section 60 of I&B Code which reads as under:
Section 60. (1) The Adjudicating Authority, in relation to insolvency resolution and liquidation for corporate persons including corporate debtors and personal guarantors thereof shall be the National Company Law Tribunal having territorial jurisdiction over the place where the registered office of the corporate person is located.

(2) Without prejudice to sub-section (1) and notwithstanding anything to the contrary contained in this Code, where a corporate insolvency resolution process or liquidation proceeding of a corporate debtor is pending before a National Company Law Tribunal, an application relating to the insolvency resolution or bankruptcy of a personal guarantor of such corporate debtor shall be filed before such National Company Law Tribunal.

(3) An insolvency resolution process or bankruptcy proceeding of a personal guarantor of the corporate debtor pending in any court or tribunal shall stand transferred to the Adjudicating Authority dealing with insolvency resolution process or liquidation proceeding of such corporate debtor.

(4) The National Company Law Tribunal shall be vested with all the powers of the Debt Recovery Tribunal as contemplated under Part III of this Code for the purpose of sub-section (2).

(5) Notwithstanding anything to the contrary contained in any other law for the time being in force, the National Company Law Tribunal shall have jurisdiction to entertain or dispose of—
(a) any application or proceeding by or against the corporate debtor or corporate person;
(b) any claim made by or against the corporate debtor or corporate person, including claims by or against any of its subsidiaries situated in India; and
(c) any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under this Code.

(6) Notwithstanding anything contained in the Limitation Act, 1963 or in any other law for the time being in force, in computing the period of limitation specified for any suit or application by or against a corporate debtor for which an order of moratorium has been made under this Part, the period during which such moratorium is in place shall be excluded.

It is, with the plain reading of the above mentioned section, we can say that, had it been the intent of the legislature to exclude the application of limitation Act, 1963, it would not have used the specific purpose for which the limitation act shall be excluded i.e., section 60(6) specifically mentions that in cases wherein moratorium has been declared, the period of moratorium which would extend to a maximum of 270 days shall be excluded in calculating the period of limitation for the purpose of filing any suit, application by or against a corporate debtor. This section very well indicates the intent of the legislature that for all other purposes the limitation act shall be made applicable.

In this case the Appellate Tribunal is of the view that “Even if it is accepted that the Limitation Act, 1963 is applicable, though we have held otherwise, in that case also application under Section 7 or 9 or 10 cannot be rejected on the ground that the application is barred by limitation for being filed beyond three years for following reasons. Except Article 137 of Part II i.e. 'other applications', as quoted below, no other provisions of Limitation are applicable in the matter of filing application under Sections 7 or 9 or 10”. The Article 137 which says that 3 years’ time is required to be provided for filing an application from the date on which the right accrued to the aggrieved party.

However, NCLAT has opined that it is the discretionary power of the tribunal to ascertain whether limitation act can be made applicable or not, and this question will only come wherein, there would have been an inordinate delay or in other words a stale claim cannot be entertained and the tribunal may use its discretionary power to ascertain the same.

4.Conclusion:
The limitation act, 1963 as per the recent judgment of the Hon’ble Appellate Tribunal shall not be applicable to the I&B Code, 2016. However, this precedent laid down by NCLAT can be overruled by the Apex Court. The I&B Code, 2016 is a complete and self-contained code which has already been settled by the Supreme Court and in its catena of judgments it has laid down that limitation act shall not be made applicable to the code which is self-contained. However, the language used in section 60(6) suggest that the intent of the legislature was that the limitation act shall be made applicable to the code till it has not reached the stage of moratorium and if a suit is filed after the period of moratorium, such period shall be excluded in computing limitation. To sum it up, even if the limitation is applicable, the decision of NCLT in the matters wherein, it has dismissed the applications filed under section 7, 9 or 10 is incorrect as 3 years’ period would begin from the date on which the right to apply will accrue as per article 137 of the schedule of limitation act. Therefore, the problem of application of limitation would come in future, when the claim of the creditor would exceed the period of 3 years from the date of coming into force of the code.

End-Notes
# Deem Roll-Tech Ltd. Vs. M/s R.L. Steel Energy Ltd. CA. NO. (IB)24/PB/2017 (also available at www.nclt.gov.in)
# Neelkanth Township and Construction Pvt. Ltd. Vs. Urban Infrastructure Trustees Ltd. (also available at www.nclat.gov.in
# K.V. Rao v. B.N. ReddiAIR 1969 SC 872
# (2009)5 SCC 791
# (2004) 11 SCC 456
# clat.gov.in/final_orders/Principal_Bench/2017/insolvency/07112017AT4776782017.pdf (last visited on 27thDecember 2017)
# http://nclat.gov.in/final_orders/Principal_Bench/2017/insolvency/07112017AT4776782017.pdf(last visited on 23rd December 2017)
# M/s. Innoventive Industries Ltd. Vs. ICICI Bank & Anr. 2017 SCC OnLine SC 1025
# The Limitation Act, 1963
# Insolvency and Bankruptcy Code, 2016
# M/s. Speculum Plast Pvt. Ltd.Vs. PTC Techno Pvt. Ltd. (also available at http://nclat.gov.in/final_orders/Principal_Bench/2017/insolvency/07112017AT4776782017.pdf)

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