Limitation Act applies to IBC proceedings: Key takeaways from Supreme Court ruling

M/s TECH SHARP ENGINEERS PVT. LTD. Versus SANGHVI MOVERS LIMITED

M/s TECH SHARP ENGINEERS PVT. LTD. Versus SANGHVI MOVERS LIMITED - TMI Issues Involved:
1. Applicability of Limitation Act to proceedings under the Insolvency and Bankruptcy Code (IBC).
2. Determination of the relevant date for computing limitation.
3. Effect of acknowledgment of debt on the limitation period.
4. Impact of parallel proceedings on the limitation period.

Issue-wise Detailed Analysis:

1. Applicability of Limitation Act to proceedings under the Insolvency and Bankruptcy Code (IBC):
The Supreme Court affirmed that the provisions of the Limitation Act apply to proceedings under the IBC. Specifically, Section 14(2) of the Limitation Act allows for the exclusion of time spent in prosecuting another civil proceeding in good faith in a court without jurisdiction. Additionally, Section 18 of the Limitation Act provides that an acknowledgment of liability in writing can restart the limitation period, provided the acknowledgment is made before the original limitation period expires.

2. Determination of the relevant date for computing limitation:
The Court emphasized that the relevant date for computing the limitation period is the date on which the right to sue accrues, which is the date when a default occurs. In the case of B.K. Educational Services Pvt. Ltd. v. Parag Gupta and Associates, it was held that the right to sue accrues when a default occurs, and if the default occurred more than three years before the date of filing the application, the application would be barred by limitation unless Section 5 of the Limitation Act is applied to condone the delay.

3. Effect of acknowledgment of debt on the limitation period:
The Court noted that acknowledgment of debt must be made before the expiration of the original limitation period to restart the limitation period. In this case, the last acknowledgment of liability by the Appellant was on 7th November 2013, and the last payment was made in June 2013. Therefore, the acknowledgment did not extend the limitation period beyond the original three years from the date of default.

4. Impact of parallel proceedings on the limitation period:
The Supreme Court held that the pendency of proceedings in a parallel forum does not constitute sufficient cause for the delay in filing an application under Section 9 of the IBC. The initiation of winding up proceedings in the Madras High Court did not save the limitation period for initiating CIRP proceedings in the NCLT under Section 7 of the IBC. The Court clarified that while a claim may not be barred by limitation, the remedy for realization of the claim can be barred by limitation.

Conclusion:
The Supreme Court set aside the impugned order of the NCLAT, which had held that the application under Section 9 of the IBC was within the limitation period. The Court concluded that the claim was barred by limitation as the right to sue accrued more than three years before the filing of the application under the IBC. The appeal was allowed, and the NCLAT's order was deemed unsustainable in law. However, the judgment did not prevent the Respondent from pursuing any other remedy available under the law or continuing any pending proceedings.

Final Judgment:
The appeal was allowed, and the impugned order of the NCLAT was set aside. The judgment clarified that the Respondent could still pursue any other legal remedies or pending proceedings in accordance with the law.