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of <h1>Supreme Court rules time-barred application under Insolvency Code, emphasizes limitation period</h1> <h3>BABULAL VARDHARJI GURJAR Versus VEER GURJAR ALUMINIUM INDUSTRIES PVT. LTD. & ANR.</h3> BABULAL VARDHARJI GURJAR Versus VEER GURJAR ALUMINIUM INDUSTRIES PVT. LTD. & ANR. - [2020] 222 Comp Cas 115 (SC), 2020 AIR 4668, 2020 (15) SCC 1, 2020 ... Issues Involved:1. Limitation Period for Filing Application under Section 7 of the Insolvency and Bankruptcy Code (IBC).2. Applicability of Section 18 of the Limitation Act, 1963.3. Date of Default and its Impact on Limitation.4. Effect of Mortgage on Limitation Period.5. Relevance of Other Proceedings and Acknowledgments.Detailed Analysis:1. Limitation Period for Filing Application under Section 7 of the Insolvency and Bankruptcy Code (IBC):The primary issue in this case is whether the application made by the financial creditor under Section 7 of the IBC is barred by limitation. The Supreme Court reiterated that the period of limitation for such applications is governed by Article 137 of the Limitation Act, 1963, which prescribes a limitation period of three years from the date when the right to apply accrues. The Court emphasized that the right to apply under the IBC accrues on the date when default occurs. Therefore, if the default occurred more than three years before the filing of the application, the application would be time-barred unless there is a basis for condonation of delay.2. Applicability of Section 18 of the Limitation Act, 1963:The respondents contended that the acknowledgment of debt in the balance sheets and annual reports of the corporate debtor extended the period of limitation under Section 18 of the Limitation Act. However, the Court noted that the application filed by the financial creditor specifically mentioned the date of default as 08.07.2011, without any reference to acknowledgment or any other date of default. The Court held that the question of limitation is a mixed question of law and facts, and relevant facts must be pleaded and evidence adduced. Since the financial creditor did not plead acknowledgment in the application, the benefit of Section 18 could not be availed.3. Date of Default and its Impact on Limitation:The financial creditor stated the date of default as 08.07.2011 in the application under Section 7 of the IBC. The Court held that the limitation period of three years began to run from this date. Since the application was filed in March 2018, it was beyond the prescribed limitation period and therefore barred by limitation. The Court emphasized that the date of default is crucial in determining the limitation period, and the financial creditor failed to provide any other date of default or acknowledgment to extend the limitation period.4. Effect of Mortgage on Limitation Period:The National Company Law Appellate Tribunal (NCLAT) had held that the period of limitation for recovery of possession of mortgaged property is twelve years, and therefore, the claim was not barred by limitation. The Supreme Court disapproved this reasoning, stating that an application under Section 7 of the IBC is not for enforcement of mortgage liability and Article 62 of the Limitation Act, which provides a twelve-year limitation period for suits relating to mortgages, does not apply. The Court reiterated that the limitation period for an application under Section 7 is governed by Article 137 of the Limitation Act, which prescribes a three-year limitation period.5. Relevance of Other Proceedings and Acknowledgments:The Court noted that at the time of filing the application under Section 7 of the IBC, a petition under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993, was pending before the Debt Recovery Tribunal (DRT). The Court clarified that the pendency of other proceedings does not affect the limitation period for filing an application under the IBC. The Court also observed that the acknowledgment of debt in the balance sheets and the request for one-time settlement (OTS) made by the corporate debtor in July 2018 were not pleaded in the application under Section 7 and therefore could not be considered for extending the limitation period.Conclusion:The Supreme Court allowed the appeal, set aside the orders of the NCLAT and the National Company Law Tribunal (NCLT), and rejected the application filed by the financial creditor under Section 7 of the IBC as being barred by limitation. The Court emphasized that the limitation period for such applications is three years from the date of default, and in this case, the application was filed beyond the prescribed period. Consequently, all proceedings undertaken in the said application, including the appointment of the Interim Resolution Professional (IRP), were annulled.
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