India: Applicability Of Limitation Act To Proceedings Under The Insolvency And Bankruptcy Code, 2016

The much debated I&B Code, 2016 was enacted by the Government to correct the mounting burden of debts on business and corporate houses and to improve the NPA status of banks. It aimed towards a measure which provided the companies an option to revive and start afresh, simultaneously giving the creditors their due. The code has been used by several creditors to recover their dues or debts. In such a scenario one question arises that whether for a time-barred claim/debt an application under the I&B Code can be filed. The question has arisen in a no. of cases.

In Deem Roll-Tech Limited v. M/S R.L. Steel & Energy Ltd.,23 the question pertaining to initiation of CIRP for a timebarred claim came before the Principal Bench of NCLT. The debt had arisen out of sale and the last payment by the debtor was made on 25.02.2014. Holding that the provisions of Limitation Act, 1963 are applicable to applications under I&B Code, it was observed by the bench as follows:

"Sec. 255 of IBC provides that the Companies Act 2013 shall be amended in the manner specified in the eleventh schedule to IBC and a perusal of the eleventh schedule of IBC discloses the amendments made to the Companies Act 2013 of several provisions though not section 433 of the Act wherein specifically the provisions of the Limitation Act 1963 (36 of 1963) is made applicable and that it shall, as far as may be apply to the proceedings or appeals before the Tribunal or Appellate tribunal as the case may be. Hence in the absence of any specific bar in the IBC to the application of the Limitation Act, 1963 coupled with the provisions of Sec. 433 of the Act as contained in the Companies Act 2013 which makes Limitation Act applicable to this Tribunal the debt as claimed by the petitioner is barred by limitation and hence cannot be the basis for invoking IBC before this Tribunal".

A similar question arose in Sanjay Bagrodia v. Sathyam Green Power Pvt. Ltd.24 before the Principal Bench at New Delhi. To counter the plea that Limitation Act will be applicable to proceedings under I&B Code, the counsel for the operational creditor contended that tribunals are creatures of a statute and the Limitation Act, 1963 cannot be read into the Statutes creating the Tribunals unless it is expressly provided. He drew the attention of the Bench to Section 238 of I&B Code and argued that this is a non-obstante clause which provide that the IBC will have its effect notwithstanding anything inconsistent therewith contained in other laws for the time being in force.

The bench relied on its decision in Deem Role and held that limitation period is applicable and that the rule of prudence requires that public policy of law must be given effect which is widely followed. Law does not come to the rescue of those who sleep over their rights. It comes to the help of those who are vigilant. Explaining the non-obstante nature of section 238 of the Code, the bench observed as follows:

"The other argument based on Section 238 of IBC would also not advance the case of the applicant because Section 238 only postulates that if there is any conflict between the provisions of IBC and any other existing law then IBC would prevail. It is obviously a non-obstante clause. Nothing has been pointed out to us to highlight any conflict so as to attract the application under Section 238 of the IBC."

Hon'ble Justice MM Kumar in Sanjay Bagrodia also referred Section 60(6) of the Code and held that it provides for application of Limitation Act, 1963 to the I&B Code. The section provides as follows:

"(6) Notwithstanding anything contained in the Limitation Act, 1963 or in any other law for the time being in force, in computing the period of limitation specified for any suit or application by or against a corporate debtor for which an order of moratorium has been made under this Part, the period during which such moratorium is in place shall be excluded".

Interpreting the aforesaid provision Hon'ble J. MM Kumar observed as follows:

"The simple result flowing from the plain reading of Section 60(6) IBC is that the claim made before the NCLT must also be within the period of limitation as prescribed by the Limitation Act, 1963."

Thus, the petition of the operational creditor, being for a claim outside the net of limitation period was dismissed. Nevertheless, the position seems to have now been changed with the ruling given by Appellate Tribunal NCLAT in Neelkanth Township and Construction Pvt. Ltd. v. Urban Infrastructure Trustees Limited.25 The NCLAT held that there is nothing on the record that Limitation Act, 1963 is applicable to I&B Code. There is no provision of the I&B Code which suggest that the Law of Limitation is applicable. The bench observed as follows:

"The I & B Code, 2016 is not an Act for recovery of money claim, it relates to initiation of Corporate Insolvency Resolution Process. If there is a debt which includes interest and there is default of debt and having continuous course of action, the argument that the claim of money by Respondent is barred by Limitation cannot be accepted.

Therefore, as of now the law stands on the footing that for bringing application under I&B Code, 2016, adherence to Limitation Act, 1963 is not required. Even when a creditor comes up with a time-barred claim/ debt, the process of Corporate Insolvency Resolution Process can be initiated at his instance. The ruling of the NCLAT is in consonance with the propounded object of the Code i.e. it is not a forum or tool for debt recovery but a platform for reinstating and revival of business which cannot be denied merely because the claim has become time-barred and there can be no default in respect of the same.


23 Company Application No. (I.B.) 24/PB/2017.

24 C.P. No. (IB)108(PB)/2017, MANU/NC/0465/2017.

25 Company Appeal (AT) (Insolvency) No. 44 of 2017, MANU/ NL/0063/2017.

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