Limitation under IBC may account for SICA suspension, but a pre-existing dispute still defeats a section 9 insolvency claim.

Under Section 9 of the Insolvency and Bankruptcy Code, limitation may be affected where the creditor was statutorily barred from recovery proceedings during the SICA suspension period; that period could be considered for limitation relief, rather than ignored, in light of Sections 238A and 5 of the Limitation Act, 1963. However, a section 9 application still fails if there was a real, pre-existing dispute before the demand notice. Applying the settled Sections 8 and 9 test, the Court found the correspondence, BIFR proceedings and later civil or arbitral steps showed a plausible dispute, so the insolvency application was not maintainable.

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Issues: (i) Whether the period during which proceedings were suspended under Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 could be excluded while computing limitation for an application under Section 9 of the Insolvency and Bankruptcy Code, 2016. (ii) Whether the corporate debtor had raised a pre-existing dispute sufficient to defeat the application under Section 9 of the Insolvency and Bankruptcy Code, 2016.

Issue (i): Whether the period during which proceedings were suspended under Section 22 of the Sick Industrial Companies (Special Provisions) Act, 1985 could be excluded while computing limitation for an application under Section 9 of the Insolvency and Bankruptcy Code, 2016.

Analysis: Section 238A of the Insolvency and Bankruptcy Code, 2016 makes the Limitation Act, 1963 applicable to applications under the Code, and limitation for an operational creditor's application runs from the date of default. The statutory bar under Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 prevented coercive legal proceedings during the relevant period, and Section 22(5) excluded the suspended period for enforcement of the creditor's right. The Court held that, in such a situation, the disabled period could not be ignored merely because the application was filed after repeal of SICA, and the proper course was to treat that period as relevant to condonation of delay under Section 5 of the Limitation Act, 1963.

Conclusion: The exclusion principle was accepted, and the suspended period under SICA could be taken into account for the purpose of limitation relief.

Issue (ii): Whether the corporate debtor had raised a pre-existing dispute sufficient to defeat the application under Section 9 of the Insolvency and Bankruptcy Code, 2016.

Analysis: Under Sections 8 and 9 of the Insolvency and Bankruptcy Code, 2016, read with the settled law on operational insolvency, the adjudicating authority must reject a section 9 application if a real and plausible dispute existed before receipt of the demand notice. The correspondence before the demand notice, the proceedings before the BIFR, the reference to reconciled dues, and the later civil and arbitral steps showed that the dispute was not spurious or illusory. The Court applied the test that a dispute need only be pre-existing and plausible, not conclusively established at that stage.

Conclusion: A pre-existing dispute was found to exist, and the section 9 application was not maintainable.

Final Conclusion: The dismissal of the insolvency application was sustained, and the parties were left to work out their remedies in arbitration, with the legal questions decided in the judgment standing concluded.

Ratio Decidendi: For a section 9 application under the Insolvency and Bankruptcy Code, 2016, a period during which the creditor was statutorily barred from initiating recovery proceedings may be relevant for limitation relief, but the application will still fail if a pre-existing and plausible dispute existed before the demand notice.

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