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GAURAV HARGOVINDBHAI DAVE V/S ASSET RECONSTRUCTION COMPANY LTD & ANR

Author: Mansi Gehrana, V year of B.A.,LL.B from Vidyasthali Law College, Jaipur.


Introduction

Insolvency & Bankruptcy Code, 2016 was passed to consolidate and to provide at the same time, a time-bound resolution of disputes. The Code deals with reorganisation and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner. With the object of maximising the value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders.


There is always a struggle between the Code and Limitation Act as to what will be the relevant period of Limitation under which an application for corporate insolvency resolution could be filled.


Facts of the Case

Application under Section 7 of Insolvency & Bankruptcy was filed by the (Financial Creditor), Asset Reconstruction Company (India) Limited against (Corporate Debtor) Shivam Water Treaters Private Limited which was admitted by the Adjudicating Authority (NCLT). Because of the Respondent 2 was declared NPA in 2011.


As a result of which State Bank of India filed two OAs for the recovery of debt of 50 crore rupees, which was declared to be not maintainable by NCLT. NCLT applied Article 62 which specifies the limitation period of 12 years. Aggrieved by the decision of NCLT an appeal has been filed in NCLAT ,the question before the NCLAT was that whether the claim is barred by the Limitation, NCLAT held that the claim of ARCIL was not barred by the Limitation because of the assignment deed which was declared invalid by DRT, Ahmedabad which was revived by the Hon’ble Gujarat High Court, that’s why NCLAT relied upon the decision of NCLT and applied the period of Limitation to be of 12 years.


Issues Raised

The issue before Hon’ble Supreme Court was cle 62 or Article 137 applies in the present case?


Arguments Advanced

Arguments by the Learned Counsel for Appellants,, Mr. Aditya Parolia was –

Article 137 has to be applied in this case because it is a residuary Article and the right to sue had elapsed and more than 3 years have been passed since 2011. The application filed under Section 7 is out of time. He was pressing upon B.K Educational Services (P) Ltd. v Parag Gupta & Associates.


Arguments by the Learned Senior Counsel for Respondents,, Mr Debal Banerjee was-

The findings of NCLT have to be reiterated and Article 62(the period of limitation is 12 years from the date of default in case of money secured by mortgage) has to be applied in the present case after pressing upon para 11 of B.K Educational Services(P) Ltd. v. Parag Gupta & Associates. And because of the nature of the Code as it is a commercial code, so to make the Code more workable and effective, a commercial interpretation has to be given to the provisions of the Code.


Judgement

The Hon’ble Court held that the Article was out of way because it applies to only suits, and “an application” filed under Section 7 of Insolvency & Bankruptcy Code would squarely come under the residuary power under Article 137 of Limitation Act. The Court points out that the Report of the Insolvency Committee itself says that the intent of the Code cannot be equated to give a new lease of life to debts which are already time-barred. Therefore, for filling the application under Section 7 was three years only and has become time-barred. The Court could not find how para 11 of B.K Educational Service Pvt Ltd will help the respondents to establish their point. It is not the duty of the Court to interpret commercially the Article of Limitation Act.


Conclusion

The applicability of the provisions of Limitation Act,1963 for the applications filed for the initiation of corporate insolvency resolution process has always been a controversial issue since the enactment of Insolvency & Bankruptcy Code, 2016. In fact, NCLAT in its decision of Neelkant Township & Construction held that the provisions of the Limitation Act were not applicable to the proceedings under IBC.

But as the passage of time & the matter of applicability of Limitation Act to the proceedings under IBC grew, the issue has been put to end by the amendment dated June 6,2018 with the insertion of Section 238A in IBC which clearly mentions that the provisions of Limitation Act will be applicable to the proceedings or appeals before NCLAT, Debt Recovery Tribunal. Adjudicating Authority, or Debt Recovery Appellate Tribunal.


Therefore, there is no equity about the period of limitation to the applications filed under Section 7 of IBC as the legal position is still not cleared, it is still unambiguous & can be used arbitrarily.