The Supreme Court of India ("SC") in the judgment New Delhi Municipal Council v. Minosha India Limited, dated 27 April, 2022, Civil Appeal No. 3470 of 2022 has clarified the position on the applicability of the Limitation Act, 1963 ("Act") and the Insolvency and Bankruptcy Code, 2016 ("IBC").
New Delhi Municipal Council ("NDMC") had entered into an agreement with Minosha India Limited ("MIL") on 20 February, 2015. Owing to the purported failure of MIL to perform its obligations under the agreement, NDMC terminated the agreement. On 7 June, 2016, MIL initiated arbitration proceedings under the Arbitration and Conciliation Act, 1996 ("A&C Act") by issuing a notice of commencement of arbitration. Before the arbitration proceedings could commence, on 14 May, 2018, MIL was admitted into insolvency under the IBC by the national company law tribunal ("Tribunal"). A resolution plan to resolve the insolvency of MIL was sanctioned by the Tribunal on 28.11.2019. MIL filed an application to appoint an arbitrator under the A&C Act before the Delhi High Court on 28.11.2019 which was allowed on 14.12.2020. In the proceedings before the Delhi High Court, NDMC did not raise the issue of limitation under the Act.
Arguments in the SC
NDMC raised an argument of limitation before the SC. This was based on the fact that the notice of commencement of arbitration was dated 7 June, 2016 and as such, the application for appointment of an arbitrator under the A&C Act ought to have been filed within 3 years from the date of the notice of commencement, being on or before 6 June, 2019, when in fact the application was filed only on 28.11.2019. NDMC argued that in light of the language of the provisions of the Act, even if limitation is not raised by a party, the court is bound to consider the issue of limitation. NDMC also contended that the language of Section 60(6) of the IBC ought not to protect the action of MIL.
MIL on the other hand argued that the period of moratorium contemplated under Section 14 of the IBC is to be understood as a 'calm period' for the entity that is undergoing insolvency and as such Section 60(6) would save the period of limitation under the Act.
The question before the SC was the interpretation of Section 3 the Act (obligation to go into the issue of limitation, even if not raised), Section 14 of the IBC (period of moratorium), Section 25(2)(b) of the IBC (obligations of the resolution professional to represent on behalf of the company in insolvency against third parties) and Section 60(6) of the IBC (during the period of moratorium the applicability of the Act would be suspended).
The SC in its judgment observed that when there was a potential conflict between two provisions of any legislation, a manner of interpretation that would make all provisions sustainable ought to be preferred and not otherwise. While Section 25(2)(b) of the IBC imposed an obligation on the resolution professional to conduct proceedings on behalf of the company in insolvency, Section 60(6) of the IBC clearly suspended the continuation of limitation under the Act for as long as a company in insolvency was under the moratorium imposed under Section 14 of the IBC. With that being so, and while relying on various judgments of the SC and the House of Lords, the SC was of the view that Section 60(6) would have to be read in its plain meaning and not as being in contradiction of Section 25(2)(b). The SC emphasised that the period of insolvency for a company under the IBC was a period of turbulence where the management and control of a company transfers from an interim resolution professional to a resolution professional all the while being under control of a committee of creditors and at all times to the exclusion of the management of the company in insolvency. The committee of creditors, who are at the helm of the affairs of the company in insolvency are keen to resolve the insolvency of the company than initiate litigations on behalf of the company in insolvency. Therefore, the wisdom of the Parliament in looking to exclude the period of limitation under the Act for as long as a company is in insolvency under the IBC cannot be faulted with or interpreted in a manner that would render the provision as meaningless.
This judgment is a welcome one since it solidifies the position of law that the period of limitation, which otherwise never halts, is expressly expected to halt during the period of insolvency resolution under the IBC. A company, once out of insolvency, would be confronted with the continuation of the period of limitation. This judgment is in line with the continued interpretation of the SC to overall interpret the IBC in a manner that makes the legislation efficient and effective.
The content of this document do not necessarily reflect the views/position of Khaitan & Co but remain solely those of the author(s). For any further queries or follow up please contact Khaitan & Co at email@example.com