TaxTMI 
TaxTMI 
TaxTMI 
2021 (3) TMI 1183
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....12, the Corporate Debtor requested the Financial Creditor for cash credit facility of Rs. 1,00,00,000/- (Rupees One Crore). 3. By a letter of sanction dated 15th February, 2012, the Financial Creditor granted Cash Credit Facility of Rs. 1,00,00,000/- to the Corporate Debtor, after which a Cash Credit Account No.482 was opened in the name of the Corporate Debtor. The Corporate Debtor duly executed a hypothecation agreement with the Financial Creditor on 17th February, 2012. 4. According to the Financial Creditor, in May 2012 itself the Corporate Debtor defaulted in repayment of its debt to the Financial Creditor, in terms of cash credit facility granted by the Financial Creditor to the Corporate Debtor. The said Cash Credit Account No.482 became irregular. The Financial Creditor declared the said Account of the Corporate Debtor a Non Performing Asset (NPA) on 31st March 2013. 5. On or about 18th January 2014, the Financial Creditor issued notice to the Corporate Debtor under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 hereinafter referred to, in short as the 'SARFAESI Act', calling upon the Corporate De....
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....orate Debtor hypothecated to the Financial Creditor. 12. On 24th July 2017, the High Court passed an interim order restraining the Financial Creditor from taking steps against the Corporate Debtor under the SARFAESI Act until further orders. The High Court was of the prima facie view that the Financial Creditor being a Cooperative Bank, it could not invoke the provisions of the SARFAESI Act. It appears that the Writ Petition is still pending consideration in the High Court. 13. On or about 10th July 2018, the Financial Creditor filed an application in the Kolkata Bench of NCLT for initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor under Section 7 of the IBC. 14. Notice of the petition under Section 7 of the IBC was duly served on the Corporate Debtor. The Corporate Debtor appeared through one Sesh Nath Singh, being the Appellant No.1, and opposed the petition. On behalf of the Corporate Debtor, it was contended that the Writ Petition filed by the Corporate Debtor, challenging the maintainability of the proceedings under the SARFAESI Act, was pending adjudication in the High Court. 15. The maintainability of the application under Sectio....
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....ted out by Mr. Sai Deepak appearing for the Financial Creditor, the Financial Creditor had, in its application filed in the NCLT under Section 7 of the IBC, enclosed a synopsis of relevant facts and significant dates, with supporting documents, which included the date of sanction of the loan, the date when the Cash Credit Account was declared NPA, the dates of the Demand Notice under Section 13(2) of the Act and the notice under Section 13(4), notice of date of possession under Section 13(4), the date on which possession order was issued by the District Magistrate, Hooghly, West Bengal and the date of the interim order of the High Court. 22. The relevant dates reveal that the Cash Credit Account of the Corporate Debtor was declared NPA with effect from 31st March, 2013. Proceedings under the SARFAESI Act commenced on 18th January 2014, when a Demand Notice was issued under Section 13(2) of the SARFAESI Act. In other words, proceedings were initiated under the SARFAESI Act, 2002, approximately 9 months and 18 days after the date of accrual of the right to issue. The proceedings under the SARFAESI Act, 2002 were stayed by the Calcutta High Court, by an order dated 24th July 2017, on....
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....k Ltd.' The Bank also initiated Arbitration under Section 84 of the Multi-State Cooperative Societies Act on 4th December, 2015. The Bank had also taken possession of the movable assets under Section 13(4) of the 'SARFAESI Act, 2002' as back as on 16th January, 2017. 24. In the circumstances, instead of remitting the case to the Bench, wehold that application under Section 7 filed by the 'Cosmos Co- Company Appeal (AT) (Insolvency) No. 1121 of 2019 Operative Bank Limited' was barred by limitation. We, accordingly, set aside the impugned order dated 23rd September, 2019 passed by the Adjudicating Authority (National Company Law Tribunal), Mumbai Bench, Mumbai." 26. Mr. Dave submitted that the account of Corporate Debtor with the Financial Creditor had been declared Non-Performing Asset (NPA) on 31st March, 2013. The cause of action thus accrued on 31st March 2013. The period of 3 years expired on 31st March, 2016. Mr. Dave argued that the application under Section 7 of the IBC, filed before the NCLT on 10th July, 2018, after five years and three months from the date of declaration of the account of the Corporate Debtor as NPA, was fatally time barred. 27. Mr.....
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....Creditor under SARFAESI Act were still pending, it was not open to the Financial Creditor to take the benefit of Section 14(2) of the Limitation Act, 1963. The explanation in Section 14 of the Limitation Act, is extracted herein below: "Explanation: for the purposes of this section,- (a) in excluding the time during which a former civil proceeding was pending, the day on which that proceeding was instituted and the day on which it ended shall both be counted;" 32. The IBC was enacted to consolidate and amend the laws relating to reorganisation and insolvency resolution of inter alia corporate persons in a time-bound manner, for maximisation of the value of assets of such corporate bodies, to promote entrepreneurship, availability of credit and to balance the interests of all stakeholders. 33. Prior to enactment of IBC, there was no single law in India that dealt with insolvency and bankruptcy. Provisions relating to insolvency and bankruptcy of companies were to be found in the Sick Industrial Companies (Special Provisions) Act, 1985, hereinafter referred to in short as "SICA", the Recovery of Debt Due to Banks and Financial Institutions Act, 1993, now known as the Reco....
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....re the Adjudicating Authority when a default has occurred. Provided that for the financial creditors, referred to in clauses (a) and (b) of sub-section (6-A) of Section 21, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than one hundred of such creditors in the same class or not less than ten per cent. of the total number of such creditors in the same class, whichever is less: Provided further that for financial creditors who are allottees under a real estate project, an application for initiating corporate insolvency resolution process against the corporate debtor shall be filed jointly by not less than one hundred of such allottees under the same real estate project or not less than ten per cent. of the total number of such allottees under the same real estate project, whichever is less: Provided also that where an application for initiating the corporate insolvency resolution process against a corporate debtor has been filed by a financial creditor referred to in the first and second provisos and has not been admitted by the Adjudicating Authority before the commencement of the Insolvenc....
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....ion under sub-section (5). (7) The Adjudicating Authority shall communicate- (a) the order under clause (a) of sub-section (5) to the financial creditor and the corporate debtor; (b) the order under clause (b) of sub-section (5) to the financial creditor, within seven days of admission or rejection of such application, as the case may be." 38. A financial creditor may either by itself or jointly with other financial creditors, as may be notified by the Government, file an application for initiation of the corporate insolvency resolution process against a corporate debtor before the Adjudicating Authority, when a default has occurred. The trigger point for an application under Section 7 of the IBC is the occurrence of a default. The restrictions stipulated in the three provisos to Section 7 are not applicable in this case. 39. As observed by this Court (Rohinton Nariman, J.) in Innovative Industries Limited v. ICICI Bank and Another (2018) 1 SCC 407, the scheme of the IBC is to ensure that when a default takes place, in the sense that the debt becomes due and is not paid, the insolvency resolution process begins. Default is defined in Section 3(12) in very wide terms as mean....
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.... the extent indicated above. So long as a dispute truly exists in fact and is not spurious, hypothetical or illusory, the adjudicating authority has to reject the application." 43. In enacting the IBC, the legislature has, in its wisdom, differentiated between an application for initiation of corporate insolvency resolution process by a financial creditor, which is filed under Section 7 of the IBC, and an application for initiation of insolvency resolution process by an operational creditor, which is under Section 9 of the IBC, set out herein below:- 9. Application for initiation of corporate insolvency resolution process by operational creditor.- (1) After the expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment under sub-section (1) of Section 8, if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under sub-section (2) of Section 8, the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process. (2) The application under sub-section (1) shall be filed in such form and manner and accompanied with su....
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....ed that Adjudicating Authority, shall before rejecting an application under sub-clause (a) of clause (ii) give a notice to the applicant to rectify the defect in his application within seven days of the date of receipt of such notice from the Adjudicating Authority. (6) The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5) of this section. 44. Under Section 9(5)(i)(d) of the IBC, the Adjudicating Authority has to reject an application made by an operational creditor, if notice of dispute has been received by the operational creditor and there is no record of dispute in the information utility. There is no such provision in section 7 of the IBC. 45. The Limitation Act 1963, has been enacted to consolidate and amend the law of limitation of suits and other proceedings and for purposes connected therewith. The Limitation Act applies to "suits and other proceedings and for purposes connected therewith" as stated in its preamble. The expression "other proceedings" are necessarily proceedings arising out of and/or related to suits. 46. In K. Venkateswara Rao And Anr. v. Bekkam Narasimha Reddi & Ors AIR 1969 SC ....
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....is governed by Article 137 of the Schedule to the Limitation Act. Under Article 137 of the Schedule to the Limitation Act, the period of limitation prescribed for such an application is three years from the date of accrual of the right to apply. 52. There can be no dispute with the proposition that the period of limitation for making an application under Section 7 or 9 of the IBC is three years from the date of accrual of the right to sue, that is, the date of default. In Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Ltd. And Anr. (2019) 10 SCC 572, this Court held:- "6. ......The present case being "an application" which is filed under Section 7, would fall only within the residuary Article 137." 53. Section 5 of the Limitation Act provides that any appeal or any application, other than an application under any of the provisions of Order XXI of the Code of Civil Procedure, 1908, may be admitted after the prescribed period of limitation, if the appellant or the applicant satisfies the Court, that he had sufficient cause for not preferring the appeal or making the application within such period. The explanation in Section 5 of the Limitation Act clarifies th....
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....so different High Courts and, in particular, the judgment of this Court in B.K. Educational Services Private Limited v. Parag Gupta Associates and Ors. (supra) the NCLT/NCLAT has the discretion to entertain an application/appeal after the prescribed period of limitation. The condition precedent for exercise of such discretion is the existence of sufficient cause for not preferring the appeal and/or the application within the period prescribed by limitation. 60. In Ramlal Motilal and Chhotelal v. Rewa Coalfields Ltd. AIR 1962 SC 361 this Court affirmed the view taken by Madras High Court in Krishna v. Chattappan 1890 ILR Mad 269 and held that Section 5 of the Limitation Act gives the Courts a discretion, which is to be exercised in the way in which judicial power and discretion ought to be exercised, upon principles which are well understood. The expression 'sufficient cause' should be construed liberally to advance substantial justice, as held by this Court, inter alia, in Shakuntla Devi Jain vs. Kuntal Kumar AIR 1969 SC 575 and in State of West Bengal v. Administrator, Howrah Municipality and Others(1972) 1 SCC 366. 61. The condition precedent for condonation of the delay in fil....
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....t the appellant/applicant had sufficient cause for not preferring the appeal or making the application within such period. Alternatively, a proviso or an Explanation would have been added to Section 5, requiring the appellant or the applicant, as the case may be, to make an application for condonation of delay. However, the Court can always insist that an application or an affidavit showing cause for the delay be filed. No applicant or appellant can claim condonation of delay under Section 5 of the Limitation Act as of right, without making an application. 65. As observed above, Section 238A makes the provisions of the Limitation Act applicable to proceedings under the IBC before the Adjudicating authority and the Appellate Authority (NCLAT) 'as far as may be'. Section 14(2) of the Limitation Act which provides for exclusion of time in computing the period of limitation in certain circumstances, provides as follows: "14. Exclusion of time of proceeding bona fide in court without jurisdiction. - (1) ..... (2) In computing the period of limitation for any application, the time during which the applicant has been prosecuting with due diligence another civil proceeding, whethe....
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....here such proceeding is prosecuted in good faith in a Court which, from defect of jurisdiction or other cause of like nature, is unable to entertain it. The conditions for exclusion are that the earlier proceedings should have been for the same relief, the proceedings should have been prosecuted diligently and in good faith and the proceedings should have been prosecuted in a forum which, from defect of jurisdiction or other cause of a like nature, was unable to entertain it. 71. In State of Goa v. Western Builders (2006) 6 SCC 239, this Court held that Section 14 of the Limitation Act would apply to an application for setting aside of an arbitral award under Section 34 of the Arbitration and Conciliation Act, 1996 by virtue of Section 43 of the said Act, which made the Limitation Act applicable to arbitrations as it applies to proceedings in Court. This Court found that in the absence of any provision in the Arbitration and Conciliation Act, 1996 excluding the applicability of Section 14, a party was legitimately entitled to exclusion of the time spent in bona fide prosecution of proceedings with due diligence in a wrong forum. Distinguishing the earlier judgment of this Court in....
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....the award should be made within three months and the period can be further extended on sufficient cause being shown by another period of 30 days but not thereafter, this Court is of the opinion that the provisions of Section 5 of the Limitation Act would not be applicable because the applicability of Section 5 of the Limitation Act stands excluded because of the provisions of Section 29(2) of the Limitation Act. However, merely because it is held that Section 5 of the Limitation Act is not applicable to an application filed under Section 34 of the Act for setting aside an award, one need not conclude that provisions of Section 14 of the Limitation Act would also not be applicable to an application submitted under Section 34 of the Act of 1996. 21. Section 14 of the Limitation Act deals with exclusion of time of proceeding bona fide in a court without jurisdiction. On analysis of the said section, it becomes evident that the following conditions must be satisfied before Section 14 can be pressed into service: (1) Both the prior and subsequent proceedings are civil proceedings prosecuted by the same party; (2) The prior proceeding had been prosecuted with due diligence and in g....
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....r setting aside an award as three months from the date on which the applicant has received the arbitral award. The proviso thereto vests in the court discretion to extend the period of limitation by a further period not exceeding thirty days if the court is satisfied that the applicant was prevented by sufficient cause for not making the application within three months. The use of the words "but not thereafter" in the proviso makes it clear that even if a sufficient cause is made out for a longer extension, the extension cannot be beyond thirty days. The purpose of proviso to Section 34(3) of the AC Act is similar to that of Section 5 of the Limitation Act which also relates to extension of the period of limitation prescribed for any application or appeal. It vests a discretion in a court to extend the prescribed period of limitation if the applicant satisfies the court that he had sufficient cause for not making the application within the prescribed period. Section 5 of the Limitation Act does not place any outer limit in regard to the period of extension, whereas the proviso to sub-section (3) of Section 34 of the AC Act places a limit on the period of extension of the period of ....
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....during which the applicant had been prosecuting such proceeding, in computing the period of limitation. The substantive provisions of Sub-sections (1), (2) and (3) of Section 14 do not say that Section 14 can only be invoked on termination of the earlier proceedings, prosecuted in good faith. 78. In Bihta Co-operative Development Cane Marketing Union Ltd. and Anr. v. Bank of Bihar and Ors. AIR 1967 SC 389, this Court held that the explanation must be read so as to harmonize with and clear up any ambiguity in the main section. It should not be so construed as to widen the ambit of the section. 79. As held in S. Sundaram Pillai and Others v. V.R. Pattabiraman and Others (1985) 1 SCC 591, it is well settled that an explanation added to a statutory provision is not a substantive provision in any sense of the term but is meant to explain or clarify certain ambiguities, which may have crept into statutory provisions. 80. In Sundaram Pillai (supra), this Court referred to Sarathi's Interpretation of Statutes; Swarup's Legislation and Interpretation, Interpretation of statues (5th edition) by Bindra as also various judgments of this Court including those referred to above and held:- "....
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....ion. 83. To cite another example, if civil proceedings were initiated in a wrong forum in good faith and prosecuted with due diligence, but after the proceedings ended, time was wasted by making frivolous, meritless applications, the applicant would only be entitled to exclusion of time from the date of initiation till the end of the proceedings initiated in good faith and bona fide and pursued diligently, and no more. The applicant would not be entitled to exclusion of any further time spent in pursuing frivolous further proceedings, or otherwise. 84. To sum up, Section 14 excludes the time spent in proceeding in a wrong forum, which is unable to entertain the proceedings for want of jurisdiction, or other such cause. Where such proceedings have ended, the outer limit to claim exclusion under Section 14 would be the date on which the proceedings ended. 85. In the instant case, the proceedings under the SARFAESI Act may not have formally been terminated. The proceedings have however been stayed by the High Court by an interim order, on the prima facie satisfaction that the proceedings initiated by the financial creditor, which is a cooperative bank, was without jurisdiction. The....
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....on Act 1963, as far as may be, have been applied to proceedings under the IBC, there is no reason why Section 14 or 18 of the Limitation Act would not apply for the purpose of computation of the period of limitation. 89. To quote V. Sudhish Pai from his book 'Constitutional Supremacy - A Revisit' "Judgments and observations in judgments are not to be read as Euclid's theorems or as provisions of statute. Judicial utterances/pronouncements are in the setting of the facts of a particular case. To interpret words and provisions of a statute it may become necessary for judges to embark upon lengthy discussions, but such discussion is meant to explain not define. Judges interpret statutes, their words are not to be interpreted as statutes." 90. As observed above, unlike statutes like the Arbitration Act, 1940 and the Arbitration and Conciliation Act 1996, which make the provisions of the Limitation Act, as they apply to Court proceedings, also applicable to arbitration proceedings, Section 238A of the IBC makes the Limitation Act applicable to proceedings in NCLT/NCLAT 'as far as may be' and/or in other words, to the extent they may be applied. 91. Legislature has in its wisdom chose....
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....der Section 7 or 9 of the IBC, Section 14 were to be interpreted with rigid and pedantic adherence to its literal meaning, to hold that only civil proceedings in Court would enjoy exclusion, the result would be that an applicant would not even be entitled to exclusion of the period of time spent in bona fide invoking and diligently pursuing an earlier application under the same provision of IBC, for the same relief, before an Adjudicating Authority, lacking territorial jurisdiction This could not possibly have been the legislative intent. 96. In our considered opinion, the judgment of the NCLAT in the case of Ishrat Ali is unsustainable in law. The proceedings under the SARFAESI Act, 2002 are undoubtedly civil proceedings. In S.A.L. Narayan Rao and Anr. v. Ishwarlal Bhagwandas and Anr. AIR 1965 SC 1818, the Constitution Bench of this Court held:- ".....The expression "civil proceeding" is not defined in the Constitution, nor in the General Clauses Act. The expression in our judgment covers all proceedings in which a party asserts the existence of a civil right conferred by the civil law or by statute, and claims relief for breach thereof. A criminal proceeding on the other hand ....
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....FAESI Act does not exclude the intervention of Courts and/or Tribunals altogether. Some relevant provisions of the SARFAESI Act are set out herein below: "14. Chief Metropolitan Magistrate or District Magistrate to assist secured creditor in taking possession of secured asset.-(1) Where the possession of any secured assets is required to be taken by the secured creditor or if any of the secured asset is required to be sold or transferred by the secured creditor under the provisions of this Act, the secured creditor may, for the purpose of taking possession or control of any such secured assets, request, in writing, the Chief Metropolitan Magistrate or the District Magistrate within whose jurisdiction any such secured asset or other documents relating thereto may be situated or found, to take possession thereof, and the Chief Metropolitan Magistrate or as the case may be, the District Magistrate shall, on such request being made to him- (a) take possession of such asset and documents relating thereto; and (b) forward such asset and documents to the secured creditor: Provided that any application by the secured creditor shall be accompanied by an 23. affidavit duly affirmed b....
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....ovided also that the requirement of filing affidavit stated in the first proviso shall not apply to proceeding pending before any District Magistrate or the Chief Metropolitan Magistrate, as the case may be, on the date of commencement of this Act. (1A) The District Magistrate or the Chief Metropolitan Magistrate may authorise any officer subordinate to him,- (i)to take possession of such assets and documents relating thereto; and (ii) to forward such assets and documents to the secured creditor. (2) For the purpose of securing compliance with the provisions of subsection (1), the Chief Metropolitan Magistrate or the District Magistrate may take or cause to be taken such steps and use, or cause to be used, such force, as may, in his opinion, be necessary. (3) No act of the Chief Metropolitan Magistrate or the District Magistrate1 [any officer authorised by the Chief Metropolitan Magistrate or District Magistrate] done in pursuance of this section shall be called in question in any court or before any authority. 17. Application against measures to recover secured debts.-(1) Any person (including borrower), aggrieved by any of the measures referred to in sub-section (4) of sect....
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....ine whether lease or tenancy,- (a) has expired or stood determined; or (b) is contrary to section 65A of the Transfer of Property Act, 1882 (4 of 1882); or (c) is contrary to terms of mortgage; or (d) is created after the issuance of notice of default and demand by the Bank under subsection (2) of section 13 of the Act; and (ii) the Debt Recovery Tribunal is satisfied that tenancy right or leasehold rights claimed in secured asset falls under the sub-clause (a) or sub-clause (b) or sub-clause (c) or sub-clause (d) of clause (i), then notwithstanding anything to the contrary contained in any other law for the time being in force, the Debt Recovery Tribunal may pass such order as it deems fit in accordance with the provisions of this Act. 18. Appeal to Appellate Tribunal.-(1) Any person aggrieved, by any order made by the Debts Recovery Tribunal under section 17, may prefer an appeal along with such fee, as may be prescribed]to the Appellate Tribunal within thirty days from the date of receipt of the order of Debts Recovery Tribunal. Provided that different fees may be prescribed for filing an appeal by the borrower or by the person other than the borrower: Provided fur....