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TaxTMI 
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2019 (9) TMI 1121
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....ushpa Shah respectively, both of whom are shareholders of La-Fin Financial Services Pvt. Ltd. (hereinafter "La-Fin") assailing the order of the National Company Law Tribunal, Mumbai Bench (hereinafter referred to as the "NCLT") admitting a winding up petition that was filed by IL&FS Financial Services Ltd. (hereinafter referred to as "IL&FS") against La-Fin before the High Court of Judicature at Bombay (hereinafter referred to as the "Bombay High Court"), which was transferred to the NCLT and then heard as a Section 7 application under the Insolvency and Bankruptcy Code, 2016 (hereinafter referred to the "the Code"). 4. The brief facts necessary to appreciate the narrow controversy that arises in Writ Petition (Civil) No.455 of 2019 and its connected matters are as follows: (i) On 20th August, 2009, a share purchase agreement was executed between Multi-Commodity Exchange India Limited (hereinafter referred to as "MCX"), MCX Stock Exchange Limited (hereinafter referred to as "MCX-SX") and IL&FS, whereby IL&FS agreed to purchase 442 lakh equity shares of MCX-SX from MCX. (ii) Pursuant to this agreement, La-Fin, as a group company of MCX, issued a 'Letter of Undertaking' to IL&F....
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.... up petition (hereinafter referred to as the "Winding up Petition") was then filed by IL&FS against La-Fin in the Bombay High Court under Section 433(e) of the Companies Act, 1956. (viii) The Code came into force on 1st December, 2016, and as a result, as per the Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, the Winding up Petition was transferred to the NCLT as a Section 7 application under the Code. The statutory form under these Rules, namely, Form-1 was filled up by IL&FS indicating that the date of default was 19th August, 2012. (ix) On 28th August, 2018, the said Winding up Petition was admitted by the NCLT as an application under Section 7 of the Code, stating on a reading of the share purchase agreement and the Letter of Undertaking that a financial debt had, in fact, been incurred by La-Fin. The National Company Law Appellate Tribunal (hereinafter referred to as the "NCLAT") by an order dated 21st January, 2019 dismissed the appeal filed by Shri Jignesh Shah against the aforesaid admission order, agreeing with the NCLT that the aforesaid transaction would fall within the meaning of "financial debt" under the Code, and that the bar....
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....iled by IL&FS, and relied heavily on the fact that the Form-1 (which was filled by IL&FS in order to transfer the aforesaid Winding up Petition to the NCLT) itself stated that the date of default was 19th August, 2012, clearly indicating that the Winding up Petition, being beyond three years of the cause of action, was time-barred. 6. On the other hand, Shri Neeraj Kishan Kaul, learned Senior Advocate appearing on behalf of the Respondents IL&FS, argued that the cause of action for the suit and the cause of action for the Winding up Petition filed were separate and distinct. He argued that it is well-settled that a winding up petition cannot be filed in order to recover a debt, but is a proceeding 'in rem', which involves commercial insolvency of the company sought to be wound up. Therefore, according to the learned Senior Advocate, the cause of action for filing the Winding up Petition arose only in 2015/2016, after Shri Jignesh Shah (the Petitioner before us) was arrested; after attachment of the assets of La-Fin; and as stated in the Winding up Petition, after La-Fin's assets had fallen from being worth around INR 1000 crores in 2013, to only being worth around INR 200 crores ....
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....le to exclude the extension of this principle of law to the Code. 28.2 Further, non-application of the law on limitation creates the following problems: first, it re-opens the right of financial and operational creditors holding time-barred debts under the Limitation Act to file for CIRP, the trigger for which is default on a debt above INR one lakh. The purpose of the law of limitation is "to prevent disturbance or deprivation of what may have been acquired in equity and justice by long enjoyment or what may have been lost by a party's own inaction, negligence or latches"4. Though the Code is not a debt recovery law, the trigger being 'default in payment of debt' renders the exclusion of the law of limitation counter-intuitive. Second, it re-opens the right of claimants (pursuant to issuance of a public notice) to file time-barred claims with the IRP/RP, which may potentially be a part of the resolution plan. Such a resolution plan restructuring time-barred debts and claims may not be in compliance with the existing laws for the time being in force as per section 30(4) of the Code. 28.3 Given that the intent was not to package the Code as a fresh opportunity for creditor....
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....ould destroy an important defence available to a debtor in a suit against him by the creditor, and may fall foul of Article 14 of the Constitution of India. 23. Another judgment referred to by learned counsel for the appellants is contained in Union of India v. Uttam Steels Ltd., (2015) 13 SCC 209. Here the question was whether Section 11-B of the Central Excise Act as amended on 12.05.2000 would apply to the fact situation in that case. Section 11-B provided a longer period of limitation by substituting "six months" with "one year". Since the rebate application was filed within a period of one year, the respondent contended that they were within time. This Court held, in paragraph 10, that limitation, being procedural law, would ordinarily be retrospective in nature. This is however with one proviso superadded, which is that the claim made under the amended provision should not itself have been a dead claim in the sense that it was time-barred before the amending Act came into force, bringing a larger period of limitation with it. On the facts of that case, it was held that since the claim for rebate was made beyond the period of six months but within the extended period of one....
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....ay be applied to condone the delay in filing such application." 10. This judgment clinches the issue in favour of the Petitioner/Appellant. With the introduction of Section 238A into the Code, the provisions of the Limitation Act apply to applications made under the Code. Winding up petitions filed before the Code came into force are now converted into petitions filed under the Code. What has, therefore, to be decided is whether the Winding up Petition, on the date that it was filed, is barred by lapse of time. If such petition is found to be time-barred, then Section 238A of the Code will not give a new lease of life to such a time-barred petition. On the facts of this case, it is clear that as the Winding up Petition was filed beyond three years from August, 2012 which is when, even according to IL&FS, default in repayment had occurred, it is barred by time. 11. Dr. Singhvi relied upon a number of judgments in which proceedings under Section 433 of the Companies Act,1956 had been initiated after suits for recovery had already been filed. These judgments have held that the existence of such suit cannot be construed as having either revived a period of limitation or having exte....
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....er a different matter if the petitioner-company approached this court for winding up of opposite party No. 1 after obtaining a decree from the Calcutta High Court in Suit No. 1073 of 1987, and the decree remaining unsatisfied, as provided in clause (b) of sub-section (1) of section 434. Therefore, since the debt of the petitioner-company has become time-barred and cannot be legally proved in this court in course of the present proceedings, winding up of opposite party No. 1 cannot be ordered due to non-payment of the said debt." 13. In Rameswar Prasad Kejriwal & Sons Ltd. v. M/s. Garodia Hardware Stores (2002) 108 Comp Cas 187, a money suit that was filed in 1994 was decreed in 1997, after which a winding up petition under Section 433 of the Companies Act, 1956 was filed in 2001. In this fact situation, the learned Single Judge held: "13. It is an admitted position that the cause of action of the company arose in 1992. The suit was filed in 1994 and the decree was obtained in 1997. But on the basis of the said debt which is said to be merged in the decree, the winding up petition cannot be filed after the period of limitation that means after a period of three years. 14. It....
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....tion which arose before the Court was whether the invocation of the SARFAESI Act, being beyond limitation, would be saved because of the pending proceedings under Section 19 of the Recovery of Debts Due to Banks and Financial Institutions Act, 1993. The Court negatived the plea of the Bank, stating: "22. Section 14 of the Limitation Act, 1963 permits exclusion of the time taken to proceed bona fide in a Court without jurisdiction. Such section permits a plaintiff to present the same suit, if the Court of the first instance, returns a plaint from defect of jurisdiction or other causes of like nature, being unable to entertain it. In the present case, a secured creditor is not withdrawing a proceeding pending before the Debts Recovery Tribunal under Section 19 of the Act of 1993 to invoke the provisions of the Act of 2002. Rather the secured creditor is proceeding, independent of its right to proceed under the Act of 1993, while invoking the provisions of the Act of 2002. This choice of the secured creditor to invoke the Act of 2002 is independent of and despite the pendency of the proceedings under the Act of 1993, has to be looked at from the perspective of whether or not such a....
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....ndent remedies. It is not necessary that every petition under Section 433 of the Companies Act, 1956 ends up in an order of winding up. Several essential factors as public interest, justice and convenience enter into the consideration before the prayed for order results. The nature of the defence and extent of dispute raised by the respondent also impact adjudication in winding up action. At the same time, limitation for seeking the remedy of recovery against the company continues to run. The two remedies are not alternative remedies. More often than not, as a matter of abundant caution, parties do not wait for final decision in one remedy before invoking the other. xxx xxx xxx 14. In view of the above, mere filing of the suit by the petitioner in order to protect its right and by way of abundant caution certainly would not prohibit filing of the winding up petition or preclude the petitioner from maintaining the same." 16. In Board of Regents of the University of the State of New York et. al. v. Mary Tomanio 100 S. Ct. 1790, the Supreme Court of the United States of America held that a federal action under the Civil Rights Act of 1871 was barred by the application of a thr....
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....inite end," the "statute of limitations begins to run anew." Rodriguez- Gracia, 354 F.3d at 97 (internal quotation marks omitted). *582. The plaintiff's reliance on this principle elevates hope over reason. In order to have the tolling effect desired by the plaintiff, the complaint in the first action "must assert causes of action identical to" those asserted in the second action. Id. (internal quotation marks omitted). 6. The identicality requirement has three facets. The two actions "must seek the same form of relief"; they "must be based on the same substantive claims"; and they "must be asserted against the same defendants in the same capacities." Id. at 98. The plaintiff offers no developed argumentation sufficient to show that she satisfies these conditions. In all events, it is readily apparent that the plaintiff has not satisfied the identicality requirement. The first action, brought in the Court of First Instance, sought the equitable remedies of reinstatement and back pay; the second action, brought in the federal district court, sought the legal remedies of compensatory and punitive damages. Thus, it is nose-on-the-face plain that the two actions did not seek t....
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....for more than six years. In other words a local authority petition for non-payment of rates is subject to the provisions of the Limitation Acts. Mr. Acton for the local authority conceded, as I understand, that rates unpaid for six years and never the subject of a distress warrant were irrecoverable in any way; so that the local authority ceases to be a creditor and thus may not petition. But, said Mr. Acton, once a distress warrant has been obtained it remains always available for execution and thus preserves the local authority its character as a creditor and ever able to petition. I do not accept this submission. If one assumes that the two distress warrants issued in this case remain available to the local authority, I do not think it follows that the provisions of the Limitation Acts that I have mentioned do not operate to stop the presentation of a petition. The effect of Section 2(1) of the 1939 Act (or Section 9(1) of the 1980 Act) is that a petition may not be presented if six years have passed since the rates were demanded. There is nothing there to qualify the position if a distress warrant happens to be current. A petition lies not because a distress warrant has been or....
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....ation order would be passed at the hearing of his petition and simply because the hearing of the petition is delayed not for any default on his part but say on account of the exigencies of the Court work the creditor will have to meet the fate which he may not have thought of or contemplated, if in the meantime the debt becomes barred by limitation. I do not see any hardship arising to the creditor as suggested by Mr. Shah, for it would be open to the creditor or rather it would be his duty to see that he keeps the debt alive either by means of an acknowledgement or part payment or by filing a suit in respect thereof in a proper court well within the period of limitation, but to my mind, it is clear that mere pendency of an insolvency petition without anything more cannot have the effect of saving the limitation prescribed by the Indian Limitation Act." The context in which the learned Single Judge made an observation that the filing of a suit within limitation would keep the debt alive, is in the context of Section 13 of the Presidency-towns Insolvency Act, 1909 - which requires that the debt of the petitioning creditor should be alive even at the hearing of the insolvency petit....
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....ry to set out Section 433(e) and Section 434 of the Companies Act, 1956, which read as follows: "433. Circumstances in which company may be wound up by Tribunal.- A company may be wound up by the Tribunal,- xxx xxx xxx (e) if the company is unable to pay its debts;" "434. Company when deemed unable to pay its debts.-(1) A company shall be deemed to be unable to pay its debts- (a) if a creditor, by assignment or otherwise, to whom the company is indebted in a sum exceeding one lakh rupees then due, has served on the company, by causing it to be delivered at its registered office, by registered post or otherwise, a demand under his hand requiring the company to pay the sum so due and the company has for three weeks thereafter neglected to pay the sum, or to secure or compound for it to the reasonable satisfaction of the creditor; (b) if execution or other process issued on a decree or order if any Court or Tribunal in favour of a creditor of the company is returned unsatisfied in whole or in part; or (c) if it is proved to the satisfaction of the Tribunal that the company is unable to pay its debts, the Tribunal shall take into account the contingent and prospect....
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....r Section 433(e), the High Court had rejected the claim of the Appellant to wind up the Company as creditors of the Company. Unlike the present case, the Appellant therein gave no statutory notice to raise any presumption of inability to pay debts. In this context, this Court held: "20. Two rules are well settled. First, if the debt is bona fide disputed and the defence is a substantial one, the court will not wind up the company. The court has dismissed a petition for winding up where the creditor claimed a sum for goods sold to the company and the company contended that no price had been agreed upon and the sum demanded by the creditor was unreasonable. (See London and Paris Banking Corporation [(1874) LR 19 Eq 444] ) Again, a petition for winding up by a creditor who claimed payment of an agreed sum for work done for the company when the company contended that the work had not been properly was not allowed. (See Re. Brighton Club and Horfold Hotel Co. Ltd. [(1865) 35 Beav 204] ) 21. Where the debt is undisputed the court will not act upon a defence that the company has the ability to pay the debt but the company chooses not to pay that particular debt, see Re. A Company. [....
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.... because La-Fin (i.e. the Company sought to be wound up), could not be said to have lost its substratum as on such date. It was for this reason that he approached the winding up Court in 2016, when the assets of La- Fin, which, as of 2013 were worth over INR 1000 crores, had in 2016 become only worth INR 200 crores. 25. This judgment does not take Shri Kaul's argument any further. Nowhere in the Winding up Petition is it alleged that the company sought to be wound-up has lost its substratum, in the sense that there is no reasonable prospect of it ever making a profit in the future, nor can it be said that the company had abandoned its business and is, therefore, unable to meet the outstandings owed by it. On the other hand, what emerges from this judgment (and paragraph 21 therein in particular), is that it is not open for a company to say that a debt is undisputed, that it has ability to pay the debt, but will not pay the debt. Equally, where a debt is clearly owed, but the exact amount of debt is disputed, the company will be held to be unable to pay its debts. What has to be seen in each case is whether the debt is bona fide disputed. If so, without more, a winding up petition....
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....Krishna Iyer & Sons v. New Era Mfg. Co. Ltd. [(1965) 35 Comp Cas 410 : (1965) 1 Comp LJ 179 (Ker)])" This passage is in the context of an order under 433(e) of the Companies Act, 1956 being discretionary, which is referred to in the preceding paragraph 25. As stated hereinabove, the facts as to commercial insolvency are to be pleaded and proved at the admission stage of the winding up petition; the trigger for the winding up proceeding for limitation purposes, as has been stated hereinabove, being the date of default. 27. Shri Kaul then relied upon Mediquip Systems (P) Ltd. v. Proxima Medical System GMBH (2005) 7 SCC 42 and in particular, paragraphs 18 and 23 thereof, which state as follows: "18. This Court in a catena of decisions has held that an order under Section 433(e) of the Companies Act is discretionary. There must be a debt due and the company must be unable to pay the same. A debt under this section must be a determined or a definite sum of money payable immediately or at a future date and that the inability referred to in the expression "unable to pay its debts" in Section 433(e) of the Companies Act should be taken in the commercial sense and that the machinery ....
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....ercially solvent is one of the considerations in order to determine whether the company is able to pay its debts or not. 29. Even on the facts of this case, the Winding up Petition alleges that the ultimatum to the Respondent company asserting that the Respondent company was legally obliged to purchase the requisite shares in accordance with the terms of the Letter of Undertaking was on 7th January, 2013. By this date at the very latest, the cause of action for filing a petition under Section 433(e) certainly arose. Also, as has been correctly pointed out by Dr. Singhvi, the statutory notice given on 3rd November, 2015 does not refer to any facts as to the commercial insolvency of La-Fin. The statutory notice only refers to the suit proceedings and attachment by the EOW which had taken place long before in December 2013. Factually, therefore, no basis is laid for the legal contentions argued before us by Shri Kaul. 30. In the Winding up Petition itself, what is referred to is the fall in the assets of La-Fin to being worth approximately INR 200 crores as of October, 2016, which again does not correlate with 3rd November, 2015, being the date on which the statutory notice was it....