2026 (1) TMI 159 - AT - IBC

MSME Council award debt recovery under IBC s.9: s.8 demand notice can't restart limitation; claim time-barred, appeal dismissed

The dominant issue was whether an application under s.9 IBC was within limitation when the operational creditor issued a s.8 demand notice in 2019 and ... Application u/s 9 is barred by time limitation or not - OC's claims are based on the MSME Council Awards - computation of time limitation after expiry of 10 days of giving notice u/s 8 when amount is not paid and default is committed - submission of the appellant is that since he gave notice under Section 8 only in the year 2019 and the application filed in the year 2020 was after expiry of 10 days time hence the application was well within time - HELD THAT:- The expiry of period of 10 days for the date of delivery of notice for invoices are condition precedent for filing application Section 9 by virtue of Section 9(1) the said notice under Section 8 cannot be reason of computing the limitation for filing Section 9 application. Section 9 application has to be filed under Article 137 of the ‘Limitation Act’ within three years under the “Right to Sue Accrues”. The “Right to Sue Accrues” when the award in favour of the appellant became final and operative. Section 8 notice cannot give any fresh period of limitation to the operational creditor to initiate proceeding which had become barred by time on the day when the notice under Section 8 notice was issued to the appellant. The submission of the appellant that after giving notice under Section 8 the appellant shall be entitled for fresh period of limitation cannot be accepted. Adjudicating Authority has rightly held the application as barred by time in which there are no ground to interfere. The Appeal is dismissed. Issues: (i) Whether the Section 9 application under the Insolvency and Bankruptcy Code, 2016 is barred by limitation where an arbitral award became final prior to issuance of a notice under Section 8.Analysis: The issue requires application of Article 137 of the Limitation Act to proceedings under the IBC and examination of whether issuance of a demand notice under Section 8 creates a fresh limitation period for filing a Section 9 application. Relevant legal framework includes Sections 8 and 9 of the Insolvency and Bankruptcy Code, 2016 which prescribe the procedure and pre-conditions for an operational creditor to file for initiation of corporate insolvency resolution process, and Section 238A of the IBC which operates with the Limitation Act. Under Article 137, the limitation for filing a suit where the right to sue accrues is three years from the date of default. Where an arbitral award attains finality and becomes operative, the right to sue accrues on that date and limitation begins to run. The issuance of a Section 8 demand notice and the ten-day waiting period in Section 9 are procedural pre-conditions to seek admission of an insolvency application but do not operate to suspend or restart the limitation clock that has already run from the date the award became final. Accordingly, an operational creditor cannot rely on a later Section 8 notice to cure a claim already barred by limitation under Article 137, and Section 238A of the IBC read with Article 137 applies to bar time-barred applications arising from final arbitral awards.Conclusion: The Section 9 application is barred by limitation and the appeal challenging the Adjudicating Authority's rejection of the Section 9 application is dismissed (against the appellant).