Time-barred Appeal on Insolvency Application under I&B Code: Limitation Act Applies

The appeal in this case centered on whether the Application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (I&B Code) was time-barred. The Tribunal held that the Application, filed more than 11 years after the default, was indeed time-barred under the Limitation Act. The acknowledgment of debt in a later agreement did not extend the limitation period. Citing relevant case law, the Tribunal set aside the Adjudicating Authority's decision to admit the Application, directing appropriate action on CIRP costs and governance of the Corporate Debtor Company.

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Issues Involved:
1. Whether the Application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (I&B Code) is barred by limitation.
2. Whether the acknowledgment of debt in the Memorandum of Agreement dated 18th April 2017 extends the limitation period.

Issue-wise Detailed Analysis:

1. Barred by Limitation:
The primary issue in this appeal is whether the Application filed under Section 7 of the I&B Code is barred by limitation. The Financial Creditor and the Corporate Debtor had entered into a Debenture Subscription Agreement and a Master Facility Agreement on 21st May 2007. The subscription to the debentures was for 84 months, with interest payable at 12% per annum and an additional 6% per annum in case of default. The Corporate Debtor defaulted in paying the interest after the first payment for the quarter ending 31st September 2007. The Financial Creditor filed the Application on 26th February 2019, with the date of default recorded as 31st December 2007. The Adjudicating Authority admitted the Application without addressing the limitation issue.

The Appellant argued that the Application is time-barred as it was filed more than 11 years after the default. The Financial Creditor admitted that the interest amount became due and payable immediately after the default on 31st December 2007. Therefore, the limitation period started on that date. Even if the default date is considered as 20th May 2014 (the expiry of the Agreement period), the Application filed on 26th February 2019 is still time-barred.

The Tribunal referenced the case of B.K. Educational Services (P) Limited Vs. Parag Gupta & Associates (2018), where the Supreme Court held that the Limitation Act applies to applications filed under Sections 7 and 9 of the I&B Code from the inception of the Code. The right to sue accrues when a default occurs, and if the default occurred over three years prior to the date of filing the Application, it would be barred under Article 137 of the Limitation Act.

2. Acknowledgment of Debt:
The Financial Creditor contended that the limitation period was renewed by the acknowledgment of debt in the Memorandum of Agreement dated 18th April 2017. According to Section 18 of the Limitation Act, an acknowledgment of liability in writing before the expiration of the prescribed period extends the limitation period from the date of acknowledgment.

However, the Tribunal found that the acknowledgment in the Memorandum of Agreement came after the lapse of 11 years from the initial default in December 2007. Thus, a fresh period of limitation does not accrue from 18th April 2017. The Tribunal referenced the case of Jignesh Shah v. Union of India (2019), where the Supreme Court held that time for limitation can only be extended in the manner provided under the Limitation Act, and a separate suit for recovery does not impact the limitation for IBC proceedings.

The Tribunal concluded that the Adjudicating Authority erred in admitting the Application under Section 7 of the I&B Code as it was time-barred. The appeal succeeded, and the impugned Order was set aside. The Tribunal directed the Adjudicating Authority to pass an appropriate Order regarding the payment of Corporate Insolvency Resolution Process (CIRP) costs, and the Corporate Debtor Company would be governed by its Board of Directors.

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