2023 (1) TMI 195 - SC - IBC

Limitation for Section 9 IBC Applications is Three Years, Delay Can Be Condoned Under Section 5 Limitation Act

Sabarmati Gas Limited Versus Shah Alloys Limited

Sabarmati Gas Limited Versus Shah Alloys Limited - (2023) 3 SCC 229 Issues Involved:1. Computation of the period of limitation under Section 9 of the Insolvency and Bankruptcy Code (IBC).2. Existence of a 'pre-existing dispute' between the appellant and the respondent.Detailed Analysis:1. Computation of the Period of Limitation:The first issue revolves around whether the period during which the operational creditor's right to proceed against or sue the corporate debtor was suspended under Section 22(1) of the Sick Industrial Companies (Special Provisions Act, 1985) (SICA) can be excluded, as provided under Section 22(5) of SICA, in computing the period of limitation for an application filed under Section 9 of the IBC.The appellant contended that the period from 31.08.2010 to 01.12.2016, during which the respondent was declared a 'sick company' and the proceedings were pending before the BIFR, should be excluded. This exclusion would place the application within the three-year limitation period prescribed by Article 137 of the Limitation Act. The appellant relied on the decision in Paramjeet Singh Patheja v. ICDS Ltd. (2006) to support this contention.The respondent argued that Section 22(1) of SICA did not provide blanket protection against the running of the cause of action and merely suspended legal proceedings of coercive nature. The respondent also highlighted discrepancies in the appellant's claims regarding the quantum of outstanding dues and the date of the cause of action.The Court referenced Section 22(1) and 22(5) of SICA, noting that there was a statutory bar to legal proceedings for recovery against a 'sick company' without BIFR's consent. The Court also cited the decision in KSL & Industries Ltd. Vs. M/s. Arihant Threads Ltd (2015) to support the interpretation that recovery proceedings were suspended under Section 22(1) of SICA, and thus, the period of suspension should be excluded in computing the limitation period.The Court concluded that Section 238A of the IBC makes the Limitation Act applicable to proceedings under the IBC. Therefore, the period of suspension under Section 22(1) of SICA should be considered a sufficient cause for condoning the delay under Section 5 of the Limitation Act. The Court remanded the matter for reconsideration of the question of limitation afresh.2. Existence of a 'Pre-Existing Dispute':The second issue concerns whether the respondent had raised a dispute describable as a 'pre-existing dispute' warranting the dismissal of the application under Section 9 of the IBC.The appellant argued that the respondent's contentions regarding shortfall in gas supply and losses due to disconnection were not genuine disputes but mere excuses to avoid payment. The appellant pointed to a letter dated 04.01.2013, where the respondent agreed to pay the bills once the restructuring was agreed by BIFR, indicating no dispute existed.The respondent maintained that there was a genuine dispute regarding the dues, as evidenced by the letter dated 04.01.2013 and the proceedings before the BIFR. The respondent also cited the Commercial Suit No.92 of 2017 and the subsequent arbitration proceedings as evidence of the ongoing dispute.The Court referred to the decision in Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd. (2018), which established that the existence of a 'pre-existing dispute' should entail dismissal of an application under Section 9 of the IBC. The Court noted that the respondent had raised contentions regarding the shortfall in gas supply and losses due to disconnection in a timely manner.The Court concluded that the respondent had successfully raised a dispute describable as a 'pre-existing dispute' before the receipt of the demand notice under Section 8 of the IBC. Therefore, the dismissal of the application under Section 9 of the IBC on the ground of 'pre-existing dispute' was upheld.The Court also acknowledged the ongoing arbitration proceedings between the parties and left it to the arbitrator to decide on all contentions, except the legal questions discussed and decided in this judgment.Conclusion:The appeal was dismissed, and the Court upheld the findings of the Tribunals regarding the 'pre-existing dispute' and remanded the matter for reconsideration of the question of limitation. The parties were left with the liberty to raise all contentions before the arbitrator, except the legal questions decided in this judgment.