Limitation period bars Insolvency application: Precedents clarified, appeal allowed, Corporate Debtor released

The application under Section 7 of the Insolvency and Bankruptcy Code was found to be barred by limitation as the default occurred more than three years before filing. The judgment referenced relevant precedents and clarified the application of the Limitation Act to IBC applications. The appeal was allowed, setting aside the impugned order and declaring subsequent actions illegal. The Corporate Debtor was released to function independently, and the application under Section 7 was dismissed, with no costs awarded.

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Issues Involved:
1. Whether the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 was barred by limitation.
2. Application of Article 137 of the Limitation Act, 1963 to applications under Sections 7 or 9 of the IBC.
3. Impact of proceedings under SARFAESI Act, 2002 on the limitation period for filing an application under Section 7 of the IBC.
4. Application of Section 14(2) of the Limitation Act, 1963 in computing the limitation period for applications under Section 7 of the IBC.

Issue-wise Detailed Analysis:

1. Barred by Limitation:
The Appellant, a Director and Shareholder of the Corporate Debtor, challenged the application under Section 7 of the IBC on the grounds of being barred by limitation. The judgment referenced several precedents, including "B.K. Educational Services Private Limited vs. Parag Gupta and Associates" and "Vashdeo R. Bhojwani vs. Abhyudaya Co-operative Bank Limited," which established that the Limitation Act, 1963 applies to applications under Sections 7 and 9 of the IBC from the inception of the Code. Specifically, Article 137 of the Limitation Act is applicable, and the right to sue accrues when a default occurs. If the default occurred more than three years prior to the filing of the application, it would be barred by limitation unless Section 5 of the Limitation Act is invoked to condone the delay.

2. Application of Article 137 of the Limitation Act, 1963:
The judgment reiterated that Article 137 of the Limitation Act applies to applications under Sections 7 and 9 of the IBC. This was supported by the Supreme Court's decision in "B.K. Educational Services Private Limited vs. Parag Gupta and Associates," which clarified that the limitation period begins when the default occurs. The judgment also referenced "Jignesh Shah and another vs. Union of India and another," which emphasized that the limitation period for winding-up petitions under Section 433(e) of the Companies Act, 1956 starts from the date of default.

3. Impact of Proceedings under SARFAESI Act, 2002:
The judgment discussed whether the time spent in prosecuting proceedings under the SARFAESI Act, 2002 could be excluded from the limitation period for filing an application under Section 7 of the IBC. It was noted that actions under Section 13(2) or Section 13(4) of the SARFAESI Act are not considered civil proceedings before a court of first instance or appeal. Therefore, such actions cannot be counted for the purpose of exclusion of the limitation period under Section 14(2) of the Limitation Act. This was further supported by the judgment in "Sagar Sharma & Anr. vs. Phoenix ARC Pvt. Ltd. & Anr.," which held that Article 137 of the Limitation Act applies to applications under Section 7 of the IBC.

4. Application of Section 14(2) of the Limitation Act, 1963:
The judgment clarified that for Section 14(2) of the Limitation Act to apply, the applicant must demonstrate that they were prosecuting with due diligence another civil proceeding against the same party for the same relief in a court that lacked jurisdiction. Since actions under the SARFAESI Act do not qualify as civil proceedings before a court, they cannot be used to exclude time under Section 14(2). The judgment in "Sesh Nath Singh & Ors. v. Baidyabati Sheoraphuli Cooperative Bank Ltd." was found to be incorrect in this context.

Conclusion:
The application under Section 7 filed by the Financial Creditor was barred by limitation as the account of the Corporate Debtor was classified as NPA on 30th March 2014, and the application was filed beyond the three-year limitation period. The judgment set aside the impugned order of the Adjudicating Authority, declared all subsequent actions taken by the Interim Resolution Professional as illegal, and dismissed the application under Section 7 of the IBC. The Corporate Debtor was released from the rigour of the law and allowed to function independently through its Board of Directors. The appeal was allowed with no order as to costs.

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