India: NCLAT Settles The Issue Of The Applicability Of The Limitation Act To Insolvency Applications Under The Insolvency And Bankruptcy Code

The National Company Law Appellate Tribunal, New Delhi (NCLAT) on 7 November 2017 passed a judgment in the case of M/s Speculum Plast Private Limited v. PTC Techno Private Limited, putting to rest the question of the applicability of the Limitation Act, 1963 (Limitation Act) to the corporate insolvency resolution process under the Insolvency and Bankruptcy Code, 2016 (IBC). The present judgment comes in the wake of the decision of the NCLAT in Neelkanth Township and Construction Pvt. Ltd. v. Urban Infrastructure Trustees Ltd (Neelkanth case) and the subsequent observations of the Supreme Court in an appeal against the said decision. The brevity of the observations in the Neelkanth case and the seemingly contradictory statements of the NCLAT and Supreme Court led to confusion among stakeholders. The present case provides some clarity on the issue, while raising certain new questions and problems.

In this case, the NCLAT has held that the Limitation Act shall not apply to the IBC, however, the National Company Law Tribunal (NCLT) may take into account the doctrine of laches while considering an application for initiating the insolvency process.

Arguments on behalf of the Appellants

  • IBC is a special Act and constitutes a 'self-contained code', independent of other laws, as borne out by the report of the Bankruptcy Law Reforms Committee. As such, in the absence of any specific provision incorporating the Limitation Act, it shall not be applicable.

Arguments on behalf of the Respondents

  • Sub-section 1 of Section 5 of the IBC states that the Adjudicating Authority under the IBC shall be the NCLT, which in turn has been constituted under Section 408 of the Companies Act, 2013 (Companies Act). Therefore, it was submitted that the provision of the Companies Act including Section 433 were applicable to the IBC, as the same were not in conflict with the IBC.
  • In the absence of any contrary provisions, IBC should be read with the provisions of the Companies Act including Section 433, which expressly makes the Limitation Act applicable to proceedings before the NCLT.
  • Similarly, other provisions of the Companies Act such as sections 424,425,434 and 430 also imply that the Limitation Act is applicable to the IBC.

Submissions of the Amicus Curiae

  • The purpose of the doctrine of limitation and prescription is to prevent a state of constant uncertainty, doubt and suspense. Having a time limit for litigation is based on public policy and having a life span for legal remedies promotes general welfare. (N.Balakrishnan V. M.A. Krishnamurthy, (1998) 7 SCC 12)
  • Since the bar of limitation applies to debts presented before the Hon'ble High Courts for the purpose of winding up under the Companies Act, 1956, and to subsequent claims presented before the Official Liquidator, limitation shall also apply to claims before the NCLT and the insolvency professional.
  • Section 60(6) of the IBC speaks about the interaction of IBC and the Limitation Act. Therefore, the Limitation Act must be applicable to IBC.
  • The use of the words 'National Company Law Tribunal' in Section 60(5) of IBC instead of 'Adjudicating Authority' indicates the intent of the Legislature to make Section 433 of the Companies Act and by extension, the Limitation Act applicable to IBC.
  • Even if the IBC is considered a self-contained code, Limitation Act can still apply unless it is expressly barred. (Girnar Traders v. State of Maharashtra & Ors. (2011)3SCC 1)

Reasoning of the Court

  • IBC is a complete code in itself. This is evident from the legislative intent, statutory framework, and 'principles driving the design' of IBC. (M/s. Innoventive Industries Ltd v. ICICI Bank & Anr, 2017 SCC OnLine Sc 10251.)
  • Since IBC is a special law and a complete code in itself, even in the absence of an express exclusion of the Limitation Act, courts may examine its provisions to assess whether the Limitation Act is necessarily excluded. (Hukumdev Narain Yadav v. Lalit Narain Mishra (1974) 2 SCC 133)
  • The provisions, design and framework of the IBC show the legislative intent to necessarily exclude the application of the Limitation Act, as under:
  • Section 243 repeals the Presidency-Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920, without saving or incorporating provisions concerning the applicability of limitation contained in the aforesaid Acts.
  • Sections 7, 9, 12, 61, 62 and other such provisions of the IBC provide separate time periods for different stages in the insolvency process, which are different from the time prescribed under the Limitation Act.
  • Section 433 of the Companies Act is not applicable to the IBC since it has not been incorporated into the IBC under Section 255 read with the Eleventh Schedule.
  • The Limitation Act cannot be made applicable to a suo moto application for insolvency by a corporate applicant under Section 10, since in such applications there is no specific claim or debt.
  • Article 137 (Any other Application) of Part II of the Limitation Act prescribes a limitation period of 3 (three) years from the date that the right to apply accrues. Since the right to apply under the IBC accrued only on 1 December 2016, when the IBC came into force, all applications are within the period of limitation.
  • However, it is in the interest of public policy to prescribe a time limit for making legal claims. As such, although the Limitation Act is not applicable to the IBC, the "Doctrine of Limitation and Prescription" may still be applied, and laches on part of the applicant may be taken into consideration for rejecting a belated application.

Decision of the Court

  • The Limitation Act does not apply to insolvency applications under the IBC.
  • If the NCLT notices that the application under section 7 or 9 has been filed after a long delay, it may give opportunity to the Applicant to explain the delay within a reasonable period to ascertain whether there are any laches on the part of the Applicant. Stale claims of dues without explaining delays normally should not be entertained.
  • The aforesaid principle of laches cannot be applied to applications under Section 10 by a corporate applicant for initiating insolvency against itself.
  • Where there is a continuing cause of action, the question of rejecting an application on the ground of delay does not arise.
  • It is open for the Committee of Creditors to decide whether a claim made after long delay is acceptable. If a creditor is aggrieved by such a decision he may apply to the NCLT for relief.

Comment

This judgement seems to adopt an antithetical approach. On the one hand, it expands the scope of the IBC to permit time barred debts, while on the other hand imposes the restriction of laches on such claims. This, in effect, replaces the objective time limits under the Limitation Act, with the more subjective bar of the doctrine of laches. As such, whether or not a claim is belated can only be determined by the NCLT, on a case by case basis, after an application is made to it.

It appears that the judgment may lead to a substantial increase in insolvency applications to the NCLT, even in cases where there are inordinate and unexplainable delays. Further, there may also be a rise in appeals before the NCLAT from decisions of the NCLT dismissing applications on the ground of limitation. This judgment may also result in situations where debts that have accrued several years ago may be used to initiate the insolvency resolution process.

Therefore, whether a debt is belated is now a matter of argument and may be decided in favour of either party depending on the facts of the case. This gives greater scope to both the debtors and creditors to agitate their stands, and makes the arguments advanced by the counsel for the parties more relevant in deciding the issue of delay.

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 legalalerts@khaitanco.com

To print this article, all you need is to be registered on Mondaq.com.

Click to Login as an existing user or Register so you can print this article.

Authors
Similar Articles
Relevancy Powered by MondaqAI
 
In association with
Related Topics
 
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
 
Related Video
Up-coming Events Search
Tools
Print
Font Size:
Translation
Channels
Mondaq on Twitter
 
Register for Access and our Free Biweekly Alert for
This service is completely free. Access 250,000 archived articles from 100+ countries and get a personalised email twice a week covering developments (and yes, our lawyers like to think you’ve read our Disclaimer).
 
Email Address
Company Name
Password
Confirm Password
Position
Mondaq Topics -- Select your Interests
 Accounting
 Anti-trust
 Commercial
 Compliance
 Consumer
 Criminal
 Employment
 Energy
 Environment
 Family
 Finance
 Government
 Healthcare
 Immigration
 Insolvency
 Insurance
 International
 IP
 Law Performance
 Law Practice
 Litigation
 Media & IT
 Privacy
 Real Estate
 Strategy
 Tax
 Technology
 Transport
 Wealth Mgt
Regions
Africa
Asia
Asia Pacific
Australasia
Canada
Caribbean
Europe
European Union
Latin America
Middle East
U.K.
United States
Worldwide Updates
Registration (you must scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions

Mondaq.com (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of www.mondaq.com

To Use Mondaq.com you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.

Disclaimer

The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.

General

Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions