Limitation for insolvency and mortgage enforcement: Section 7 claim survived, and SARFAESI safeguards did not shift management.

For a Section 7 insolvency application, limitation was assessed under Article 137 of the Limitation Act, with the right to apply treated as accruing when the Insolvency and Bankruptcy Code came into force on 1 December 2016; the filing was therefore not time-barred. A mortgage-backed bank claim was examined under Articles 61 and 62 of the Limitation Act, and, because enforcement under SARFAESI remained within the twelve-year period, the debt was not stale and liability could not be denied on limitation grounds. Deployment of security guards and concurrent auditors did not amount to takeover of actual management absent a specific order under SARFAESI.

---

---

Issues: (i) Whether the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 was barred by limitation. (ii) Whether the banks' claim was barred by limitation and the corporate debtor could deny liability on that basis. (iii) Whether the banks had taken over the actual management of the corporate debtor so as to shift responsibility for default.

Issue (i): Whether the application under Section 7 of the Insolvency and Bankruptcy Code, 2016 was barred by limitation.

Analysis: For an application under Section 7, limitation was examined with reference to Article 137 of the Limitation Act, 1963, which prescribes three years from the date when the right to apply accrues. The right to apply under the Insolvency and Bankruptcy Code accrued only when the Code came into force on 1 December 2016. On that basis, the application could not be treated as time-barred.

Conclusion: The application under Section 7 was not barred by limitation.

Issue (ii): Whether the banks' claim was barred by limitation and the corporate debtor could deny liability on that basis.

Analysis: The claim was considered in the context of Articles 61 and 62 of the Limitation Act, 1963, governing suits relating to mortgaged property and enforcement of money secured by mortgage. Since the banks had proceeded under the SARFAESI framework and the claim related to enforcement of a mortgage debt, the relevant limitation period was twelve years. On that reasoning, the banks' claim was not stale and the debt could not be denied as unenforceable in law.

Conclusion: The banks' claim was not barred by limitation and the corporate debtor could not contend that no debt was payable in law.

Issue (iii): Whether the banks had taken over the actual management of the corporate debtor so as to shift responsibility for default.

Analysis: The record showed deployment of security guards and appointment of concurrent auditors, but not a takeover of actual management. In the absence of a specific order taking over management under Section 13(4)(b) of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, the management was held to have remained with the promoters.

Conclusion: The banks had not taken over the management of the corporate debtor, and the appellant could not blame the bank for the default.

Final Conclusion: The challenge to the admission order failed, and the insolvency initiation was allowed to stand.

Ratio Decidendi: For a Section 7 insolvency application, limitation is governed by Article 137 of the Limitation Act, 1963, and a mortgage-based bank claim is not barred where enforcement remains within the twelve-year period under Articles 61 and 62 of the Limitation Act, 1963; mere security measures under SARFAESI do not amount to takeover of management absent a specific order to that effect.

---