2022 (2) TMI 1513 - HC - IBC

Section 7 IBC petition filed 23.07.2018 held within three-year limitation under Article 137; matter remitted for fresh hearing

HC held the Section 7 IBC application filed on 23.07.2018 was within three years under Article 137 of the Limitation Act but observed the impugned order ... Maintainability of application filed u/s 7 of IBC - Time barred or not - application which was filed on 23.07.2018 was within three [03] years from the date of the Order of the DRT, Visakhapatnam, as contemplated under Article 137 of the Limitation Act - HELD THAT:- A perusal of the material on record would show that the Order impugned does not anywhere indicate the proceedings before BIFR and the Order passed thereon. From the argument advanced by Sri. Vedula Srinivas, learned Senior Counsel, it would prima facie indicate that if the proceedings before the BIFR were placed before the Tribunal, it may make some impact with regard to the period of limitation. The entire gamut of the argument of the learned Counsel for the Respondent is only with regard to the Order passed by BIFR, which was taken into consideration by NCLT while holding that the application under Section 7 of Code was within the period of limitation. Since, there is a dispute with regard to the said Order being placed before the Tribunal, though the application under Section 7 of the Code filed by the Respondents was allowed on a different ground, and as the Order passed by BIFR will carry weight in calculating the period of limitation, it is felt that it would be a fit case to remit the matter back to NCLT, Amaravathi, for deciding the issue afresh by taking into consideration the Order passed by BIFR, if placed on record. The Civil Revision Petition is disposed off remanding the matter back to NCLT, Amaravathi, for deciding the issue afresh after hearing all concerned by taking into consideration the Order passed by the BIFR. ISSUES PRESENTED AND CONSIDERED 1. Whether the application filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 is barred by limitation. 2. Whether proceedings and orders passed under the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) / BIFR, and their pendency, affect computation of limitation for a Section 7 petition under the Limitation Act (specifically Article 137), and whether such materials were placed before the Tribunal for its consideration. 3. Whether the High Court should exercise jurisdiction under Article 227 of the Constitution to interfere with the National Company Law Tribunal's decision on limitation when an alternative appellate remedy under Section 61 of the IBC exists. ISSUE-WISE DETAILED ANALYSIS Issue 1 - Limitation for Section 7 petition Legal framework: Section 7 of the IBC permits a financial creditor to file an insolvency application on occurrence of default. Limitation for such proceedings is governed by the Limitation Act; the Tribunal relied on Article 137 in assessing whether the Section 7 petition was within three years from the DRT order. Precedent treatment: Parties cited Supreme Court decisions (including Babulal Vardharji Gurjar; B.K. Educational; Rajendra Narottamdas Sheth) concerning computation of limitation for IBC/SARFAESI/related recovery proceedings. The Court recorded that such authorities were placed before it by the petitioner but did not undertake substantive appellate reconsideration of applicability of those precedents to the facts because the factual question of what material was before the Tribunal remained unresolved. Interpretation and reasoning: The NCLT held the Section 7 application to be within limitation, reasoning that the filing on 23.07.2018 was within three years from the DRT, as per Article 137. The High Court reviewed whether NCLT had considered all relevant materials - notably orders and pendency under SICA/BIFR - which could affect reckoning of limitation. The Court found ambiguity in the Tribunal's order as to whether BIFR proceedings were actually placed before and considered by the Tribunal, despite the respondent's contention that NCLT did take BIFR matters into account. Ratio vs. Obiter: The NCLT's conclusion that the Section 7 petition was within limitation is operative in the impugned order; however, the High Court did not adopt that conclusion as final ratio on the limitation point. Instead, the High Court treated the question of limitation as a live factual and legal issue requiring reassessment in light of the BIFR/SICA material. The High Court's direction to remit for fresh consideration is the operative ratio of the High Court decision; any discussion of controlling Supreme Court precedents is obiter in the sense that the High Court did not decide their application on the merits. Conclusions: The High Court remitted the matter to the NCLT to decide afresh the limitation issue after hearing parties and taking into account the BIFR order(s) and related SICA proceedings, if placed on record. The High Court did not finally determine whether the Section 7 petition is time-barred. Issue 2 - Effect of SICA/BIFR proceedings on computation of limitation and whether those proceedings were before the Tribunal Legal framework: SICA contains provisions (including Section 22) that can bar certain enforcement actions against a company while proceedings before BIFR are pending. The existence and duration of such proceedings may impact accrual of cause of action and therefore computation of limitation under the Limitation Act. Precedent treatment: Parties relied upon factual and legal consequences of BIFR/SICA pendency; the High Court did not make a definitive ruling on precedent application but recognized that BIFR orders, if before NCLT, would be material in calculating limitation. Interpretation and reasoning: The High Court examined the impugned order and observed it did not expressly record consideration of BIFR proceedings or orders, creating uncertainty whether the Tribunal relied upon them. The Court accepted that if the BIFR orders were before the Tribunal and considered, they could materially affect the limitation computation. Given this factual dispute, the appropriate course was to remit the matter to the Tribunal for fresh adjudication with explicit consideration of the BIFR/SICA material. Ratio vs. Obiter: The finding that BIFR proceedings, if placed before the Tribunal, may affect limitation computation is part of the High Court's dispositive reasoning (ratio) for remittal. No final determination was made on the legal effect of SICA/BIFR on limitation - that remains for the Tribunal to decide after hearing parties and examining the record. Conclusions: The High Court ordered remand to the NCLT for reconsideration of the limitation issue with explicit reference to any BIFR/SICA orders placed on record; the High Court closed its adjudication without pronouncing on the substantive effect of SICA/BIFR on limitation. Issue 3 - Appropriateness of Article 227 interference when alternative remedy exists under Section 61 of IBC Legal framework: Article 227 confers superintendence over inferior courts/tribunals. The IBC provides an appellate remedy to the NCLT under Section 61 to the National Company Law Appellate Tribunal (or equivalent), which the respondent urged ought to be exhausted. Precedent treatment: The respondent argued that the petitioner's recourse to Article 227 was premature/ inappropriate without availing the statutory appellate remedy. The High Court acknowledged the existence of the alternative remedy but proceeded to exercise its supervisory jurisdiction to remit the matter for fresh consideration rather than to substitute its own decision on the merits. Interpretation and reasoning: The Court noted the existence of the appellate remedy and the respondent's contention, but found a factual uncertainty (whether BIFR material was before the Tribunal) that could prejudice proper adjudication of limitation. Rather than decide afresh on a contested factual record, the Court exercised supervisory jurisdiction limited to remanding the matter to enable the Tribunal to consider relevant documents and decide after hearing parties. Ratio vs. Obiter: The Court's approach - to remit rather than to quash or decide - reflects a restrained exercise of Article 227, consistent with preserving the role of the Tribunal and appellate forum. This procedural disposition is the operative ratio; the Court did not address or displace the statutory appeal route substantively. Conclusions: The High Court exercised Article 227 to remit the matter for fresh adjudication by the Tribunal on the limitation issue, directing the Tribunal to consider BIFR/SICA materials if placed on record and to hear all concerned; the Court did not entertain final determination on limitation or on whether the appellate remedy should have been first availed.