TaxTMI 
TaxTMI 
2021 (3) TMI 1183
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....and garments. On or about 8th February 2012, 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 th....
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....session by the Financial Creditor of the assets of the Corporate 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 Hig....
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.... IBC, was within limitation. The appeal was accordingly dismissed. 21. As pointed 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....
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....r Section 13(2) of the 'SARFAESI Act, 2002' was issued by the Respondent- 'Cosmos Co-operative Bank 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 thr....
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..... Referring to the Explanation in section 14(2) of the Limitation Act, Mr. Dave argued that, since the proceedings initiated by the Financial 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 ....
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....nancial creditor, as may be notified by the Central Government,] may file an application for initiating corporate insolvency resolution process against a corporate debtor before 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 c....
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....(b) of sub-section (5), give a notice to the applicant to rectify the defect in his application within seven days 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). (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 Narima....
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....rtion of fact unsupported by evidence. It is important to separate the grain from the chaff and to reject a spurious defence which is mere bluster. However, in doing so, the Court does not need to be satisfied that the defence is likely to succeed. The Court does not at this stage examine the merits of the dispute except to 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 p....
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....- (a) the application made under sub-section (2) is incomplete; (b) there has been payment of the unpaid operational debt; (c) the creditor has not delivered the invoice or notice for payment tothe corporate debtor; (d) notice of dispute has been received by the operational creditor orthere is a record of dispute in the information utility; or (e) any disciplinary proceeding is pending against any proposed resolution professional: Provided 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 pr....
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....as may be, apply to proceedings or appeals inter alia before the NCLT/NCLAT. 50. Section 238 gives overriding effect to the IBC, notwithstanding anything inconsistent therewith contained in any other law, for the time being in force, or any instrument having effect, by virtue of any such law. 51. There is no specific period of limitation prescribed in the Limitation Act, 1963 for an application under the IBC before the NCLT. An application for which no period of limitation is provided anywhere else in the Schedule, 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 un....
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....ct, 1963 applies to applications under Section 7 of the IBC? If so, is the exclusion of time under Section 14 is available, only after the proceedings before the wrong forum terminate? 58. For the sake of convenience, and to avoid prolixity and unnecessary repetition, all the aforesaid issues are dealt with together. Section 238A of the IBC provides that the provisions of the Limitation Act shall, as far as may be, apply to proceedings before the Adjudicating Authority(NCLT) and the NCLAT. 59. It is well settled by a plethora of judgments of this Court as also 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....
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.... plain reading of Section 5 of the Limitation Act makes it amply clear that, it is not mandatory to file an application in writing before relief can be granted under the said section. Had such an application been mandatory, Section 5 of the Limitation Act would have expressly provided so. Section 5 would then have read that the Court might condone delay beyond the time prescribed by limitation for filing an application or appeal, if on consideration of the application of the appellant or the applicant, as the case may be, for condonation of delay, the Court is satisfied that 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 provisio....
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....nitiated, a Recovery Certificate issued in 2003 and amended in 2001. This Court found that the documents relied upon by the Financial Creditor to claim the benefit of Section 18 of the Limitation Act, could not be construed as admission or acknowledgment of liability. 70. Section 14 (2) of the Limitation Act provides that in computing the period of limitation for any application, the time during which the petitioner had been prosecuting, with due diligence, another civil proceeding, whether in a court of first instance, or of appeal or revision, against the same party, for the same relief, shall be excluded, where 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....
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....ication by any special or local law, the provisions contained in Sections 4 to 24 shall apply only insofar as, and to the extent, they are not expressly excluded by such special or local law. When any special statute prescribes certain period of limitation as well as provision for extension up to specified time-limit, on sufficient cause being shown, then the period of limitation prescribed under the special law shall prevail and to that extent the provisions of the Limitation Act shall stand excluded. As the intention of the legislature in enacting subsection (3) of Section 34 of the Act is that the application for setting aside 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 ....
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....ings the suit or the application in the wrong court in consequence of bona fide mistake or (sic of) law or defect of procedure. Having regard to the intention of the legislature this Court is of the firm opinion that the equity underlying Section 14 should be applied to its fullest extent and time taken diligently pursuing a remedy, in a wrong court, should be excluded." 73. In his separate concurring judgment Raveendran, J. said:- "52. Section 14 of the Limitation Act relates to exclusion of time of proceeding bona fide in court without jurisdiction. ........ 53. Sub-section (3) of Section 34 of the AC Act prescribes the period of limitation for filing an application for 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 fo....
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....f time. Much emphasis has been placed by Mr. Dave on the explanation at the end of Section 14, to argue that the Financial Creditor would not be entitled to the benefit of Section 14 of the Limitation Act since the proceedings under the SARFAESI Act are still pending, as also the writ petition in the High Court. 77. Section 14 of the Limitation Act is to be read as a whole. A conjoint and careful reading of Sub-Sections (1), (2) and (3) of Section 14 makes it clear that an applicant who has prosecuted another civil proceeding with due diligence, before a forum which is unable to entertain the same on account of defect of jurisdiction or any other cause of like nature, is entitled to exclusion of the time 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 w....
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....cured by a mortgage or charge upon immovable property, for which the prescribed period of limitation is twelve years, after expiry of three years from the date of accrual of the right to sue, and then file an application under Section 7 of the IBC after dismissal of the suit for want of jurisdiction, that application under Section 7 of the IBC would be time barred since such party would not be entitled to exclusion of any period of time beyond the date of institution and date of termination of the earlier proceeding. If after exclusion of the time between the initiation and termination of the proceedings instituted bona fide and in good faith and prosecuted with due diligence, an application was still beyond three years, Section 14 would not help save limitation. 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 a....
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....he proceedings under Section 7 of IBC are still within limitation of three years. 88. An Adjudicating Authority under the IBC is not a substitute forum for a collection of debt in the sense it cannot reopen debts which are barred by law, or debts, recovery whereof have become time barred. The Adjudicating Authority does not resolve disputes, in the manner of suits, arbitrations and similar proceedings. However, the ultimate object of an application under Section 7 or 9 of the IBC is the realization of a 'debt' by invocation of the Insolvency Resolution Process. In any case, since the cause of action for initiation of an application, whether under Section 7 or under Section 9 of the IBC, is default on the part of the Corporate Debtor, and the provisions of the Limitation 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....
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....tion 238A of the IBC tones down the rigour of the words 'shall' in the aforesaid Section which is normally considered as mandatory. The expression 'as far as may be' is indicative of the fact that all or any of the provisions of the Limitation Act may not apply to proceedings before the Adjudicating Authority (NCLT) or the Appellate authority (NCLAT) if they are patently inconsistent with some provisions of the IBC. At the same time, the words 'as far as may be' cannot be construed as a total exclusion of the requirements of the basic principles of Section 14 of the Limitation Act, but permits a wider, more liberal, contextual and purposive interpretation by necessary modification, which is in harmony with the principles of the said Section. 95. If, in the context of proceedings under 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 th....
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....ernment of India accepted the recommendations of the two Committees and that led to enactment of the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (for short "the SARFAESI Act"), which can be termed as one of the most radical legislative measures taken by Parliament for ensuring that dues of secured creditors including banks, financial institutions are recovered from the defaulting borrowers without any obstruction. For the first time, the secured creditors have been empowered to take steps for recovery of their dues without intervention of the courts or tribunals." 98. Even though Section 13 of the SARFAESI Act enables a secured creditor to enforce security interest created in its favour, without the intervention of the Court or Tribunal, the SARFAESI 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 ....
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....sion of the secured assets under the provisions of sub-section (4) of section 13 read with section 14 of the principal Act; (ix) that the provisions of this Act and the rules made there under had been complied with: Provided further that on receipt of the affidavit from the Authorised Officer, the District Magistrate or the Chief Metropolitan Magistrate, as the case may be, shall after satisfying the contents of the affidavit pass suitable orders for the purpose of taking possession of the secured assets within a period of thirty days from the date of application: Provided also that if no order is passed by the Chief Metropolitan Magistrate or District Magistrate within the said period of thirty days for reasons beyond his control, he may, after recording reasons in writing for the same, pass the order within such further period but not exceeding in aggregate sixty days. Provided 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 Ch....
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....pass such other direction as it may consider appropriate and necessary in relation to any of the recourse taken by the secured creditor under subsection (4) of section 13. (4) If, the Debts Recovery Tribunal declares the recourse taken by a secured creditor under sub-section (4) of section 13, is in accordance with the provisions of this Act and the rules made there under, then, notwithstanding anything contained in any other law for the time being in force, the secured creditor shall be entitled to take recourse to one or more of the measures specified under sub-section (4) of section 13 to recover his secured debt. (4A) Where- (i) any person, in an application under sub-section (1), claims any tenancy or leasehold rights upon the secured asset, the Debt Recovery Tribunal, after examining the facts of the case and evidence produced by the parties in relation to such claims shall, for the purposes of enforcement of security interest, have the jurisdiction to examine 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 contra....