Parag Gupta & Associates vs B.K. Educational Services Pvt. Ltd

(Arising out of Order dated 11.04.2017 passed by the National Company Law Tribunal, New Delhi Bench, New Delhi in Company Petition No. (IB)- 41(ND)/2017)

Company Appeal (AT) (Insolvency) No. 47 of 2017

IN THE MATTER OF:

MIs. Speculum Plast Pvt. Ltd. ... Appellant

Versus

PTC Techno Pvt. Ltd. ... Respondent

Present: For Appellant: Shri Shubho Jana and Ms. Kanti Mohan Rustagi, Advocates

For Respondent: Shri Dhruv Gupta, Advocate

WITH

Company Appeal (AT) (Insolvency) No. 76 of 2017

(Arising out of Order dated 25.04.2017 passed by the National Company Law Tribunal, New Delhi Bench, New Delhi in Company Petition No. (IB)- 27(PB)/2017)

IN THE MATTER OF:

Parag Gupta & Associates Appellant

Versus

B.K. Educational Services Pvt. Ltd. Respondent

Present: For Appellant: Shri Mukul K. Gupta and Shri N.K. Singh, Advocates

For Respondent: Ms. Ruchi Khurana and Shri Pertpal Singh, Advocates

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 2

WITH

Company Appeal (AT) (Insolvency) No. 78 of 2017

(Arising out of Order dated 04.05.2017 passed by the National Company Law Tribunal, New Delhi Bench, New Delhi in Company Petition No. (IB)- 77(ND)/2017)

IN THE MATTER OF:

Ashlay Infrastructure Pvt. Ltd. Appellant

Versus

LDS Engineers Pvt. Ltd. Respondent

Present: For Appellant: Ms. Jhankar Rastogi with Shri Navodaya Singh Rajpurohit, Advocates

For Respondent: Shri H.D. Arya, Advocate

JUDGEMENT

SUDHANSU JYOTI MUKHOPADHAYA, J.

In all these appeals as common question of law is involved, they were

heard together and are being disposed of by this common judgment.

The question that arises for determination in these appeals is: -

Whether Limitation Act, 1963 is applicable for triggering

'Corporate Insolvency Resolution Process' under Insolvency and

Bankruptcy Code, 2016 (hereinafter referred to as "I&B Code")?

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017

3. According to Learned Counsel for the appellant(s) 'I&B Code' is a

'Special Act' enacted by Parliament and is a 'self-contained code' and in

absence of any specific provision made therein the Limitation Act, 1963 is

not applicable for triggering 'Corporate Insolvency Resolution Process'.

4. To substantiate the arguments, Learned Counsel for the appellant(s)

relied on the report of the 'Bankruptcy Law Reforms Committee' to suggest

that the legislative intent behind the formulation of the 'I&B Code' is to

formulate a 'single law', independent of any other law including the

Limitation Act.

5. On the other hand, according to learned counsel for the Respondents-

'Corporate Debtor(s)' the Limitation Act, 1963 is applicable for triggering

'Corporate Insolvency Resolution Process' under 'I&B Code' which is to be

read in conjunction with the provisions of the Companies Act, 2013 and

other Acts, as far as they are applicable.

6. It was submitted that the 'Adjudicating Authority', as defined in sub-

section (1) of Section 5 of the 'I&B Code' being 'National Company Law

Tribunal' as constituted under Section 408 of the Companies Act, 2013, the

provisions of Chapter XXVII of the Companies Act, 2013 including Section

433 of the said Act are applicable as it is not in conflict with the provisions

of the 'I&B Code'.

7. Further, according to learned counsel for the 'Corporate Debtor(s)', as

the 'I&B Code' nowhere specifically bars the applicability of the Companies

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 4

Act, 2013, Section 433 of the Companies Act, 2013 is applicable to 'I&B

Code'.

8. Referring to Sections 424, 425, 433, 434 and 430 of the Companies

Act, 2013, it was contended that the aforesaid provisions necessarily imply

that the law of limitation and procedure of the Tribunal are applicable to the

'I&B Code'.

9. On merit, Learned Counsel for the 'Corporate Debtor(s)' submitted

that all the application in question, having filed beyond the period of three

years, the application for triggering 'Corporate Insolvency Resolution

Process' were not maintainable.

10. Mr. A.S. Chandhiok, Learned Senior Counsel, who assisted the Court

as Amicus Curiae, submitted that the Doctrine of Limitation and

Prescription is based on two broad considerations.

First, there is a presumption that the right not exercised for a long

time becomes non-existent. The second is that the rights of debt or right on

property or rights in general should not be in a state of constant

uncertainty, doubt and suspense.

Reliance was placed on Salmond: Jurisprudence 12th Ed. Page 438

and 439, and observation of Hon'ble Abbott CJ in Battley v. Faulkner

[(1820) 3 B & Aid 288].

11. It was submitted that the above principles were also recognised by the

Hon'ble Supreme Court of India in "Rajinder Singh v. Santa Singh, AIR

1973 SC 2537".

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 5

12. It was further submitted that the object of fixing time-limit for

litigation is based on Public Policy, fixing a life span of legal remedies for the

purpose of general welfare as held by Hon'ble Supreme Court in "N. Balakrishnan V. M.A. Krishnamurthy, (1998) 7 SCC 123"

13. According to Learned Amicus Curiae, the Limitation Act was enacted

in the year 1963, when the provisions relating to all kinds of winding up of

the Companies were governed by the Companies Act, 1956 wherein the

question of limitation arose at two stages i.e.

(i) When winding up petition was presented before the Hon'ble High

Court, and

(ii) When the creditor presented its claim against the company in

winding up before the Official Liquidator.

14. It was contended that it is a settled principle of law, that bar of

limitation applied to the winding up petitions which used to be presented

before the Hon'ble High Court and a creditor is not entitled to file a winding

up petition based on a debt, if the debt is, otherwise time-barred.

15. Learned Amicus Curiae referred to Section 3 of Limitation Act, 1963

and submitted that the bar of limitation would apply to a claim filed by a

creditor before the Official Liquidator attached to the Hon'ble High Court in

terms of Companies Act, 1956, though the Official Liquidator is not a Court

or a Judicial Tribunal or Quasi-Judicial Tribunal, but an executive

appointed and authority recognized under the Companies Act, 1956. Such

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 6

'Official Liquidator' merely invites claims and submits report before the

Hon'ble High Court.

16. According to him now under the 'I&B Code' the Insolvency

Professional takes the position of the 'Official Liquidator', but with greater

role to play, than the 'Official Liquidator'.

17. Learned Amicus Curiae also relied on Section 433 of the Companies

Act, which provides that the provision of Limitation Act, 1963 shall, as far as

may be, apply to proceedings or appeals before the Tribunal or the Appellate

Tribunal as the case may be. It was also submitted that the Limitation Act,

1963 is also applicable for 'Corporate Insolvency Resolution Process'.

18. Learned Amicus Curiae placing reliance on sub-section (6) of Section

60 of the 'I&B Code' submitted that the said provision makes it clear that

the Limitation Act, 1963 is applicable to the proceedings under 'I&B Code'.

19. It was further submitted that the legislature in sub-section (5) of

Section 60 has not used the expression 'Adjudicating Authority', but

retained the word 'National Company Law Tribunal' which also clears the

intent of the legislature that Section 433 of the Companies Act, 2013 is

applicable for triggering the 'Corporate Insolvency Resolution Process' under

Sections 7 or 9 and 10 of the 'I&B Code'.

Reliance was also placed on definition of 'Adjudicating Authority' as

defined under sub-section (1) of Section 5 of the 'I&B Code' which means

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 7

'National Company Law Tribunal' constituted under Section 408 of the

Companies Act, 2013

20. According to Learned Senior Counsel, even if it is accepted that 'I&B

Code' is 'self-contained Code', unless it expressly bars the provision(s), the

other provisions can be made applicable. Reliance was placed on Hon'ble

Supreme Court decision in "Girnar Traders (3) v. State of Maharashtra

& Ors. (2011) 3 SCC 1", wherein two legislations fell for consideration

before the Apex Court, namely the 'Maharashtra Regional and Town

Planning Act, 1966 (MRTP Act)', and the 'Land Acquisition Act, 1894'. The

appellant in the said case had urged that the provisions of the Land

Acquisition Act would mutatis mutandis apply to an acquisition under the

MRTP Act. The respondent had, in contradiction, taken plea that MRTP Act

was a 'self-contained Code' in itself and as such the provisions of Land

Acquisition Act could not be referred to. In the said case, the Hon'ble

Supreme Court considering the aforesaid question raised by the parties

held: -

"69. For an Act to be a "self-contained code", it is

required to be shown that it is a complete legislation

for the purpose for which it is enacted. The provisions

of the MRTP Act relate to preparation, submission and

sanction of approval of different plans by the

authorities concerned which are aimed at achieving

the object of planned development in contradistinction

to haphazard development. An owner/person

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 8

interested in the land and who wishes to object to the

plans at the appropriate stage a self-contained

adjudicatory machinery has been spelt out in the

MRTP Act. Even the remedy of appeal is available

under the MRTP Act with a complete chapter being

devoted to acquisition of land for the planned

development. Providing adjudicatory mechanism is

one of the most important facets of deciding whether

a particular statute is a "complete code" in itself or

not.

21. We have noticed the rival contentions, the relevant provisions of law

and decisions, as referred to above.

22. For determination of the issue, it is to be noticed as to whether 'I&B

Code' is a 'self- contained Code' or not.

In 'MIs. Innoventive Industries Ltd v. ICICI Bank & Anr', 2017

SCC OnLine Sc 10251, the Hon'ble Supreme Court noticed the statement of

objects and reasons in passing the 'l&B Code' based on various reports,

most important of which the report of Bankruptcy Law Reforms Committee

of November, 2015, and observed: -

"13. One of the important objectives of the Code is to

bring the insolvency law in India under a single

unified umbrella with the object of speeding up of the

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 9

insolvency process. As per the data available with the

World Bank in 2016, insolvency resolution in India

took 4.3 years on an average, which was much

higher when compared with the United Kingdom (1

year), USA (1.5 years) and South Africa (2 years). The

World Bank's Ease of Doing Business Index, 2015,

ranked India as country number 135 out of 190

countries on the ease of resolving insolvency based on

various indicia."

23. In paragraph 16 of the said judgment, the Hon'ble Supreme Court

noticed the Bankruptcy Law Reforms Committee Report of November, 2015

and the 'key economic question' in the Bankruptcy Process highlighted by

Bankruptcy Law Reforms Committee, as quoted below: -

"The key economic question in the bankruptcy

process

When a firm (referred to as the corporate debtor in the

draft law) defaults, the question arises about what is

to be done. Many possibilities can be envisioned. One

possibility is to take the firm into liquidation. Another

possibility is to negotiate a debt restructuring, where

the creditors accept a reduction of debt on an NPV

basis, and hope that the negotiated value exceeds the

liquidation value. Another possibility is to sell the firm

as a going concern and use the proceeds to pay

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 10

creditors. Many hybrid structures of these broad

categories can be envisioned.

The Committee believes that there is only one correct

forum for evaluatinq such possibilities, and making a

decision: a creditors committee, where all financial

creditors have votes in proportion to the magnitude of

debt that they hold. In the past, laws in India have

brought arms of the government (legislature, executive

or judiciary) into this question. This has been strictly

avoided by the Committee. The appropriate

disposition of a defaulting firm is a business decision,

and only the creditors should make it."

xxx xxx xxx xxx "Speed is of essence

Speed is of essence for the working of the bankruptcy

code, for two reasons. First, while the 'calm period'

can help keep an organisation afloat, without the full

clarity of ownership and control, significant decisions

cannot be made. Without effective leadership, the firm

will tend to atrophy and fail. The longer the delay, the

more likely it is that liquidation will be the only

answer. Second, the liquidation value tends to go

down with time as many assets suffer from a high

economic rate of depreciation.

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 11

From the viewpoint of creditors, a good realisation

can generally be obtained if the firm is sold as a

going concern. Hence, when delays induce

liquidation, there is value destruction. Further, even

in liquidation, the realisation is lower when there are

delays. Hence, delays cause value destruction. Thus,

achieving a high recovery rate is primarily about

identifying and combating the sources of delay."

xxx xxx xxx xxx "The role that insolvency and bankruptcy plays

in debt financing

Creditors put money into debt investments today in

return for the promise of fixed future cash flows. But

the returns expected on these investments are still

uncertain because at the time of repayment, the seller

(debtor) may make repayments as promised, or he

may default and does not make the payment. When

this happens, the debtor is considered insolvent.

Other than cases of outright fraud, the debtor may be

insolvent because of

Financial failure - a persistent mismatch

between payments by the enterprise and

receivables into the enterprise, even though the

business model is generating revenues, or

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 12

• Business failure - which is a breakdown in

the business model of the enterprise, and it is

unable to generate sufficient revenues to meet

payments.

Often, an enterprise may be a successfIii business

model while still failing to repay its creditors. A sound

bankruptcy process is one that helps creditors and

debtors realise and agree on whether the entity is

facing financial failure and business failure. This is

important to allow both parties to realise the

maximum value of the business in the insolvency."

xxx xxx xxx xxx "Control of a company is not divine right. When afirm

defaults on its debt, control of the company should

shift to the creditors. In the absence of swift and

decisive mechanisms for achieving this, management

teams and shareholders retain control after default.

Bankruptcy law must address this."

24. In the said decision of Hon'ble Supreme Court the 'Principles driving

the design' the new Insolvency and Bankruptcy Resolution framework has

been noticed as quoted below: -

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 13

"Principles driving the design

The Committee chose the following principles to

design the new insolvency and bankruptcy resolution

framework:

I. The Code will facilitate the assessment of viability

of the enterprise at a very early stage.

1. The law must explicitly state that the viability of

the enterprise is a matter of business, and that

matters of business can only be negotiated between

creditors and debtor. While viability is assessed as a

negotiation between creditors and debtor, the final

decision has to be an agreement among creditors who

are the financiers willing to bear the loss in the

insolvency.

2. The legislature and the courts must control the

process of resolution, but not be 'burdened to make

business decisions.

3. The law must set up a calm period for insolvency

resolution where the debtor can negotiate in the

assessment of viability without fear of debt recovery

enforcement by creditors.

4. The law must appoint a resolution professional as

the manager of the resolution period, so that the

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 14

creditors can negotiate the assessment of viability

with the confidence that the debtors will not take any

action to erode the value of the enterprise. The

professional will have the power and responsibility to

monitor and manage the operations and assets of the

enterprise. The professional will manage the

resolution process of negotiation to ensure balance of

power between the creditors and debtor, and protect

the rights of all creditors. The professional will ensure

the reduction of asymmetry of information between

creditors and debtor in the resolution process.

II. The Code will enable symmetry of information

between creditors and debtors.

5. The law must ensure that information that is

essential for the insolvency and the bankruptcy

resolution process is created and available when it is

required.

6. The law must ensure that access to this

information is made available to all creditors to the

enterprise, either directly or through the regulated

professional.

7. The law must enable access to this information to

third parties who can participate in the resolution

process, through the regulated professional.

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 15

III. The Code will ensure a time-bound process to

better preserve economic value.

8. The law must ensure that time value of money is

preserved, and that delaying tactics in these

negotiations will not extend the time set for

negotiations at the start.

IV. The Code will ensure a collective process.

9. The law must ensure that all key stakeholders will

participate to collectively assess viability. The law

must ensure that all creditors who have the capability

and the willingness to restructure their liabilities must

be part of the negotiation process. The liabilities of all

creditors who are not part of the negotiation process

must also be met in any negotiated solution.

V. The Code will respect the rights of all creditors

equally.

10. The law must be impartial to the type of creditor

in counting their weight in the vote on the final

solution in resolving insolvency.

VL The Code must ensure that, when the negotiations

fail to establish viability, the outcome of bankruptcy

must be binding.

11. The law must order the liquidation of an

enterprise which has been found unviable. This

outcome, of the negotiations should be protected

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 16

against all appeals other than for very exceptional

cases.

VIL The Code must ensure clarity of priority, and that

the rights of all stakeholders are upheld in resolving

bankruptcy.

12. The law must clearly lay out the priority of

distributions in bankruptcy to all stakeholders. The

priority must be designed so as to incentivise all

stakeholders to participate in the cycle of building

enterprises with confidence.

13. While the law must incentivise collective action in

resolving bankruptcy, there must be a greater

flexibility to allow individual action in resolution and

recovery during bankruptcy compared with the phase

of insolvency resolution."

25. The aforesaid 'principles driving the design' shows that the Code has

been framed to facilitate the assessment of viability of the enterprise at a

very early stage; to enable symmetry of information between creditors and

debtors; to ensure a time-bound process to better preserve economic value;

to ensure a collective process; to respect the rights of all creditors equally; to

ensure that when the negotiations fail to establish viability; the outcome of

bankruptcy must be binding and to ensure clarity of priority, and that the

rights of all stakeholders are upheld in resolving bankruptcy.

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 17

26. The Hon'ble Supreme Court in "MIs. Innoventive Industries Ltd. Vs.

ICICI Bank & Anr. 2017 SCC OnLine SC 1025" referring to different

provisions of the 'I&B Code', observed:

"59. The Insolvency and Bankruptcy Code, 2016 is

an Act to consolidate and amend the laws relating to

reorganization and insolvency resolution, inter alia of

corporate persons. Insofar as corporate persons are

concerned, amendments are made to the following

enactments by Sections 249 to 252 and 255

The Hon'ble Supreme Court further held: -

"60. It is settled law that a consolidating and

amending act like the present Central enactment

forms a code complete in itself and is exhaustive of

the matters dealt with therein

The Hon'ble Supreme Court further proceeded to hold: -

"63. There can be no doubt, therefore, that the

Code is a Parliamentary law that is an exhaustive

code on the subject matter of insolvency in relation

to corporate entities, and is made under Entry 9, List

HI in the 7th Schedule which reads as under.-

nder:

"9.

'9. Bankruptcy and insolvency"

27. Thereby it is clear that the 'I&B Code' is complete code in itself.

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 18

28. Limitation Act, 1963 is the general legislation on the law of limitation.

Section 3 prescribes 'bar of limitation', as quoted below: -

"3. Bar of limitation.-- (1) Subject to the provisions

contained in sections 4 to 24 (inclusive), every suit

instituted, appeal preferred, and application made

after the prescribed period shall be dismissed,

although limitation has not been set up as a defence.

(2) For the purposes of this Act-- (2) For the purposes

of this Act--"

(a) a suit is instituted--

(i) in an ordinary case, when the plaint is

presented to the proper officer;

(ii) in the case of a pauper, when his

application for leave to sue as a pauper is

made; and

(iii) in the case of a claim against a

company which is being wound up by the

court, when the claimant first sends in

his claim to the official liquidator;

(b) any claim by way of a set off or a counter

claim, shall be treated as a separate suit and shall be

deemed to have been instituted--

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 19

(i) in the case of a set off, on the same

date as the suit in which the set off is

pleaded;

(ii) in the case of a counter claim, on the

date on which the counter claim is made

in court;

(c) an application by notice of motion in a High

Court is made when the application is presented to

the proper officer of that court."

29. In view of aforesaid provisions in 'Mukri Gopalan v. Cheppilat

Puthanpuravil Aboobacker (1995) 5 SCC 5', the Hon'ble Supreme Court

examined the question whether Limitation Act, 1963 will apply to the Kerala

Buildings (Lease and Rent) Control Act, 1965. Though, the Court noticed

that the Act prescribes a period of limitation, which is different from the

period of limitation under the Limitation Act, 1963, in absence of any

exclusion of Sections 4 to 24 of the Limitation Act 1963, the Hon'ble

Supreme Court held that those Sections 4 to 24 of Limitation Act, 1963

shall be applicable to the Kerala Buildings (Lease and Rent) Control Act,

1965.

30. However, in 'Hukumdev Narain Yadav v. Lalit Narain Mishra

(1974) 2 SCC 133', a three Judges Bench of the Hon'ble Supreme Court,

while examining the question as to whether the Limitation Act, 1963 would

be applicable to the provisions of Representation of People Act, held as

under:

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 20

"17 but what we have to see is whether the

scheme of the special law, that is in this case the Act,

and the nature of the remedy provided therein are

such that the Legislature intended it to be a complete

code by itself which alone should govern the several

matters provided by it. If on an examination of the

relevant provisions it is clear that the provisions of the

Limitation Act are necessarily excluded, then the

benefits conferred therein cannot be called in aid to

supplement the provisions of the Act. In our view,

even in a case where the special law does not exclude

the provisions of Sections 4 to 24 of the Limitation Act

by an express reference, it would nonetheless be open

to the Court to examine whether and to what extent

the nature of those provisions or the nature of the

subject-matter and scheme of the special law exclude

their operation."

31. From the decision of Hon'ble Supreme Court in 'Hukumdev Narain

Yadav v. Lalit Narain Mishra (1974) 2 SCC 133', it is clear that even if

there exists no express exclusion in the special law, the court reserves the

right to examine the provisions of the special law, to arrive at a conclusion

as to whether the legislative intent was to exclude the operation of the

Limitation Act, 1963 or not.

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 21

32. To examine the legislative intent to decide whether the 'I&B Code'

excludes the operation of the Limitation Act, 1963, it is desirable to refer the

previous Acts on Insolvency, namely the 'Presidency-Towns Insolvency Act,

1909' and the 'Provincial Insolvency Act, 1920'.

33.. In Part VII of the 'Presidency-Towns Insolvency Act, 1909', the period

of limitation was prescribed under Sections 101, which reads as follows:

"Limitation

101. The period of limitation for an appeal from any

act or decision of the official assignee, or from an

order made by an officer of the Court empowered

under section 6, shall be twenty days from the date of

such act, decision or order, as the case may be."

34. Section 101A related to computing the period of limitation for any suit

or other legal proceedings, which reads as follows: -

"101A. Where an order of adjudication has been

annulled under this Act, in computing the period of

limitation prescribed for any suit or other legal

proceeding (other than a suit or legal proceeding in

respect of which the leave of the Court was obtained

under section 17) which might have been brought but

for the making of an order of adjudication under this

Act, the period from the date of the order of

adjudication to the date of the order of annulment

shall be excluded:

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 22

Provided that nothing in this section shall apply

to any suit or other legal proceeding in respect of a

debt provable but not proved under this Act."

35. Similarly in the 'Provincial Insolvency Act, 1920' under Section 78 the

limitation was prescribed, as quoted below: -

"78. Limitation.--(1) The provisions of sections 5

and 1.2 of the Indian Limitation Act, 1908 (9 of

1908), shall apply to appeals and applications under

this Act, and for the purpose of the said section 12, a

decision under section 4 shall be deemed to be a

decree

(2) Where an order of adjudication has been

annulled under this Act, in computing the period of

limitation prescribed for any suit or application for

the execution of a decree or (other than a suit or

application in respect of which the leave of the Court

was obtained under sub-section (2) of section 28)

which might have been brought or made but for the

making of an order of adjudication under this Act,

the period from the date of the order of adjudication

to the date of the order of annulment shall be

excluded:

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 23

Provided that nothing in this section shall

apply to a suit or application in respect of a debt

provable but not proved under this Act."

36. The 'Presidency-Towns Insolvency Act, 1909' and the 'Provincial

Insolvency Act, 1920' have been repealed by Section 243 of the 'I&B Code',

relevant provision of which reads as follows: -

"243. Repeal of certain enactments and

savings. - (1) The Presidency Towns Insolvency

Act, 1909 and the Provincial Insolvency Act, 1920

are hereby repealed.

(2) Notwithstanding the repeal under sub-sections

(1), -

(i) all proceedings pending under and relating

to the Presidency Towns Insolvency Act 1909,

and the Provincial Insolvency Act 1920

immediately before the commencement of this

Code shall continue to be governed under the

aforementioned Acts and be heard and

disposed of by the concerned courts or

tribunals, as if the aforementioned Acts have

not been repealed;

(ii) any order, rule, not fication, regulation,

appointment, conveyance, mortgage, deed,

document or agreement made, fee directed,

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 24

resolution passed, direction given, proceeding

taken, instrument executed or issued, or thing

done under or in pursuance of any repealed

enactment shall, if in force at the

commencement of this Code, continue to be in

force, and shall have effect as if the

aforementioned Acts have not been repealed;

(iii) anything done or any action taken or

purported to have been done or taken,

including any rule, notification, inspection,

order or notice made or issued or any

appointment or declaration made or any

operation undertaken or any direction given or

any proceeding taken or any penalty,

punishment, forfeiture or fine imposed under

the repealed enactments, shall be deemed

valid;

(iv) any principle or rule of law, or established

jurisdiction, form or course of pleading,

practice or procedure or existing usage,

custom, privilege, restriction or exemption

shall not be affected, notwithstanding that the

same respectively may have been in any

manner affirmed or recognised or derived by,

in, or from, the repealed enactments;

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 25

(v) any prosecution instituted under the

repealed enactments and pending

immediately before the commencement of this

Code before any court or tribunal shall,

subject to the provisions of this Code, continue

to be heard and disposed of by the concerned

court or tribunal;

(vi) any person appointed to any office under

or by virtue of any repealed enactment shall

continue to hold such office until such time as

may be prescribed; and

(vii) any jurisdiction, custom, liability, right,

title, privilege, restriction, exemption, usage,

practice, procedure or other matter or thing not

in existence or in force shall not be revised or

restored.

(3) The mention of particular matters in sub-section

(2) shall not be held to prejudice the general

application of section 6 of the General Clauses Act,

1897 with regard to the effect of repeal of the

repealed enactments or provisions of the

enactments mentioned in the Schedule."

37. Though theaforesaid two Acts have been repealed, in the 'I&B Code',

the Legislature did not choose to prescribe any separate provisions of

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 26

'limitation' as was made in Section 101 of the 'Presidency-Towns Insolvency

Act, 1909' or sub-section (1) of Section 78 of the 'Provincial Insolvency Act,

1920' whereunder provisions of Sections 5 and 12 of the 'Indian Limitation

Act, 1908' were made applicable to appeals and applications under the

aforesaid Acts and the decision under the provisions was treated to be

decree.

38. However, the provision of computing the period of limitation prescribed

for any suit or other legal proceeding, as ordered to be excluded in Section

101A of the 'Presidency-Towns Insolvency Act, 1909' and sub-section (2) of

Section 78 of the 'Provincial Insolvency Act, 1920' has been retained with

appropriate modification under sub-section (6) of Section 60 of the 'I&B

Code', as quoted- below: -

"60. Adjudicating Authority for corporate

persons. - (6) Notwithstanding anything contained in

the Limitation Act, 193 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."

39. The aforesaid provisions, makes clear the intent of the Legislature

which necessarily excluded the provisions of Sections 4 to 24 of the

Limitation Act, 1963.

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78012017 27

40. A separate time period has been prescribed under different provisions

of the 'I&B Code' such as: -

Fourteen days' time allowed under sub-section (4) of Section 7 and

sub-section (4) of Section 10 of the 'I&B Code' has been allowed to the

Adjudicating Authority to ascertain fact and thereafter to admit or reject the

application, if incomplete.

41. Similarly, ten days' expiry period prescribed under sub-section (1) of

Section 9 from the date of delivery of the notice or invoice demanding

payment under sub-section (1) of Section 8 of the 'I&B Code' has been

prescribed for filing an application under section 9 of the 'I&B Code'.

42. Like, Sections 7 and 8 of the 'I&B Code' under sub-section (5) of

Section 9, the Adjudicating Authority has been allowed fourteen days' time

to admit or reject the application if incomplete, provided before rejecting an

application seven days' time is to be granted to the Applicant to remove the

defects.

43. Under Section 12 of the 'I&B Code', one hundred and eighty days time

has been prescribed for completion of 'Insolvency Resolution Process' though

it is open to the Adjudicating Authority to extend the period, but not

exceeding ninety days' (Total 270 days). If the Resolution Plan is not received

within the aforesaid period by Adjudicating Authority or it rejects the same,

under Section 33 liquidation proceedings shall be initiated.

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 28

44. For preferring appeals under Section 61 while thirty days time has

been allowed, the Appellate Tribunal has been allowed only fifteen days time

beyond thirty days to condone the delay.

45. Under Section 62 of the 'I&B Code', against order of Appellate

Tribunal, an appeal can be preferred by aggrieved person to the Hon'ble

Supreme Court but such appeal is required to be preferred within forty-five

days and the Hon'ble Supreme Court has been allowed to condone the delay

but not exceeding fifteen days.

There are other provisions where such time limit has been prescribed,

which is different from the time prescribed under the Limitation Act, 1963.

46. From the aforesaid provision, we find that the scheme of the 'Special

Act' i.e. the 'l&B Code', and the nature of the remedy provided therein are

such that the Legislature intended it to be a complete code by itself which

alone should govern the several matters provided by it.

47. In so far as, the application under Section 433 of the Companies Act,

2013 is concerned, we are of the view that the said provision is not

applicable for the following reasons: -

Under Section 255 of the 'I&B Code', certain provisions of the

Companies Act, 2013 have been amended in the manner specified in the

Eleventh Schedule of the 'I&B Code'. Thereunder Section 424 of the

Companies Act, 2013 has been made part of the 'I&B Code' for the purpose

of following procedural or principles of natural justice.

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 29 Section 433 of the Companies Act, 2013 relates to limitation as quoted

below: -

"433. Limitation. - The provisions of the Limitation Act,

1963 (36 of 1963) shall, as far as may be, apply to

proceedings or appeals before the Tribunal or the

Appellate Tribunal, as the case may be."

However, Section 433 of the Companies Act, 2013 has not been

amended to make it as a part of the 'I&B Code', therefore, we hold that

Section 433 which relates to limitation of the Companies Act, 2013, ipso

facto will not be applicable to 'I&B Code'.

48. There is a provision of limitation under the 'Recovery of Debts Due to

Banks and Financial Institutions Act, 1993' (hereinafter referred to as "DRT

Act") and 'Securitisation and Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002' (hereinafter referred to as

"SARFAESI Act").

49. By Section 249 of the 'I&B Code', the 'Recovery of Debts Due to Banks

and Financial Institutions Act, 1993' has been amended in the manner

specified in the Fifth Schedule. In the said Act, sub-section (1) and sub-

section (4) of Section 1 has been amended, as quoted below: -

"(a) In sub-section (1), for the words "Due to Banks and Financial

Institutions" the words "and Bankruptcy" shall be substituted;

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 30

(b) In sub-section (4), for the words The provision of this Code",

the words "Save as otherwise provided, the provisions of this

Code", shall be substituted."

50. Section 24 of the 'Recovery of Debts due to Banks and Financial

Institutions Act, 1993' relates to limitation, as quoted below: -

"24. Limitation.-- The provisions of the Limitation Act,

1963 (36 of 1963), shall, as far as may be, apply to an

application made to a Tribunal."

Section 24 of the said Act has not been amended by 'I&B Code' and

thereby not made applicable to 'I&B Code'.

51. Similarly, by Section 251 of the 'I&B Code' the SARFAESI Act has

been amended in the manner specified in the Seventh Schedule.

Thereunder in sub-section (9) of Section 13, for the words "In the case of',

the words and figures "Subject to the provisions of the 'I&B Code, in the

case of' have been substituted.

52. Section 36 of the SARFAESI Act relate to limitation, as quoted below:-

`36. Limitation. - No secured creditor shall be entitled to

take all or any of the measures under sub-section (4) of

section 13, unless his claim in respect of financial asset is

made within the period of limitation prescribed under the

Limitation Act, 1963 (36 of 1963)."

However, Section 36 of the SARFAESI Act has not been amended to

make applicable to 'I&B Code'..

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 31

53. In view of the aforesaid discussion, we hold that Section 24 of the

Recovery of Debts and Bankruptcy Act, 1993 and Section 36 of the

SARFAESI Act, 2002 are not applicable to the proceedings for initiation of

'Corporate Insolvency Resolution Process'.

54. On the other hand, the Committee by its report suggested to frame

law for 'Insolvency Resolution Process' to facilitate the assessment of

viability of the enterprise at a very early stage; to enable symmetry of

information between creditors and debtors; to ensure a time-bound process

to better preserve economic value; to ensure a collective process; to respect

the rights of all creditors equally; to ensure that when the negotiations fail to

establish viability, the outcome of bankruptcy must be binding and to

ensure clarity of priority, and that the rights of all stakeholders are upheld

in resolving bankruptcy, as noticed above.

55. In 'MIs. Innoventive Industries Ltd v. ICICI Bank & Anr' (Supra)

the Hon'ble Supreme Court held that one of the important objectives of the

Code is to bring the insolvency law in India under a single unified umbrella

with the object of speeding up of the insolvency process. While noticing the

key economic question in the bankruptcy process, the Hon'ble Supreme

Court noticed the report of the Bankruptcy Law Reforms Committee, and

observed that there is only one forum for evaluating possibilities, and for

taking a decision there is a creditors committee, where all 'Financial

Creditors' have votes in proportion to the magnitude of debt that they hold.

As mentioned, the Hon'ble Supreme Court also noticed that 'speed is the

Company Appeals (AT) (Insolvency) Nos. 47, 75 and 78 of 2017 32

essence' under 'I&B Code'. We find that the Committee never suggested that

for admitting the 'Resolution Process' question of limitation, should also be

considered.

56. The matter can be looked at from another angle. If law of limitation

prescribed under the Limitation Act, 1963 is made applicable, one may take

a plea that default of debt is barred by limitation to initiate 'Corporate

Insolvency Resolution Process' under Section 7 or Section 9 of the 'l&B

Code'. However, such stand cannot be taken, where a 'Corporate Applicant'

applies for initiation of 'Corporate Insolvency Resolution Process' against

itself ('Corporate Debtor'), having no capacity to pay back the debt and

default having occurred. The law of limitation cannot be made applicable for

filing an application under section 10, which otherwise will render the

provisions of Section 10 of the 'I&B Code' redundant as the 'Corporate

Applicants', do not file application for money claim. This apart, there may be

companies which are closed for more than three years and having failed to

pay a debt, such sick companies will have to be allowed to continue

resulting in depreciation of the value of its assets for time to come, which is

against the statement and object of the 'I&B Code'.

57. Similarly, in a case which is not barred by limitation, if application

filed under Section 7 or Section 9 or Section 10 of the 'I&B Code' is

admitted, pursuant to public notice under Section 15 of the 'I&B Code', the

'Interim Resolution Professional' is required to receive and collect all the

claims as may be submitted by creditors to him, as stipulated in clause (b)

of sub-section (1) of Section 18. In such case, once the creditors put their

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 33

claim, the 'Insolvency Resolution Professional' cannot reject the claim on the

ground that the claim is barred by limitation, as the provision of Limitation

Act, 1963 will not be applicable for filing a claim before the 'Interim

Resolution Professional'. Similarly, the Committee of Creditors while

deciding the resolution plan, cannot reject any such claim, on the ground

that the same is barred by limitation though the Committee of Creditors

may not make any provision in the resolution plan on the ground of

unexplained delay.

58. Even if it is accepted that the Limitation Act, 1963 is applicable,

though we have held otherwise, in that case also application under Section

7 or 9 or 10 cannot be rejected on the ground that the application is barred

by limitation for being filed beyond three years for following reasons.

Except Article 137 of Part II i.e. 'other applications', as quoted below,

no other provisions of Limitation is applicable in the matter of filing

application under Sections 7 or 9 or 10: -

Part TI-OTHER APPLICATION Description of application Period of Limitation Time from which period begins to run

137. Any other application for which Three years When the right to no period of limitation is provided apply accrues elsewhere in this division.

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 34

59. From Article 137 of the Limitation Act, 1963, it is clear that the period

of three years' is to be counted from the date right to apply accrues to a

'Financial Creditor' or 'Operational Creditor' or 'Corporate Debtor'.

60. For initiation of 'Corporate Insolvency Resolution Process', the right to

apply accrues under Section 7 or Section 9 or Section 10 only with effect

from 1st December, 2016 when 'I&B Code' has come into force, therefore, the

right to apply under Section 7 or Section 9 or Section 10 in all present cases

having accrued after 1st December 2016, such applications cannot be

rejected on the ground that the application is barred by limitation.

61. Learned Amicus Curiae rightly contended that there should be a time

limit for raising claim, including money claim. In this regard, it is desirable

to refer the definition of 'Debt' and 'Default' as defined in sub-section (11)

and (12) of Section 3 of the 'I&B Code', and quoted below: -

"3(11) "debt" means a liability or obligation in respect of

a claim which is due from any person and includes a

financial debt and operational debt;

3(12) "default" means non-payment of debt when whole

or any part or instalment of the amount of debt has

become due and payable and is not repaid by the debtor

or the corporate debtor, as the case may be"

62. From the aforesaid definition, it is clear that 'debt' is a liability or

obligation in respect of a claim which is due from any person and includes a

'Financial Debt' and 'Operational Debt'. It is further clear that when whole or

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 35

any part or instalment of the amount of debt has become due and payable

and is not repaid by the debtor or the 'Corporate Debtor', it amounts to

'default'.

63. Now, the question arises, whether a person can claim any amount due

from another, a 'Corporate Debtor' after long delay on the ground that

Limitation Act, 1963 is not applicable?

64. To decide the aforesaid issue, it is necessary to notice the Doctrine of

Limitation and Prescription, as held by jurists and Hon'ble Courts. The

Doctrine of Limitation and Prescription is based on two broad

considerations. First, there is 'a presumption that the right not exercised for

a long time is non-existent. In Salmond: Jurisprudence 12th Ed. Page 438

and 439, the learned author described the doctrine in the following words:

"In order to avoid the difficulty and error that necessarily result from lapse of time the presumption of the coincidence of fact and right is rightly accepted as final after a certain number of years. Whoever wishes to dispute this presumption must do so within the period, otherwise his right, if has one will be forfeited as a penalty for his neglect, vigilantibus non dormientibus jura subvenient (Laws come to the assistance of the vigilant and not of the sleepy)"

65. It is also necessary to ensure that the rights of debt, in property or

rights in general should not be in a state of constant uncertainty, doubt and

suspense. In Abbott CJ in Battley v. Faulkner [(1820) 3 B & Aid 288] the

Court observed that "the statute of limitation was intended for relief and quiet

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 36

of the defendant and to prevent the persons from being harassed at a distant

period of time after the committing of the injury complained of".

66. The above principles have been also recognised by the Hon'ble

Supreme Court of India in Rajinder Singh v. Santa Singh, AIR 1973 SC

2537, wherein the Hon'ble Supreme Court observed:

"The object of law of limitation is to prevent disturbance or deprivation of what may have been acquired in equity and justice by long enjoyment or what may have been lost by a party's own inaction, negligence or latches."

67. The object of fixing time-limit for litigation is based on Public Policy,

fixing a life span of legal remedies for the purpose of general welfare. The

Hon'ble Supreme Court in N. Balakrishnan v. M.A. Krishnamurthy, (1998)

7 scc 123, inter alia observed:

"the rules of limitation are not meant to destroy the rights of the parties but are meant to see that the parties do not resort to dilatory tactics but seek their remedy promptly and the law of limitation fixes a life span for legal injury suffered and that it is enshrined in the maxim interest reipublicae Ut sit finis litum i.e. it is for the general welfare that a period to be put to litigation and this is not meant to destroy the rights of the parties, but they are meant to see that the party do not resort to dilatory tactics but seek their remedy promptly because the idea is that every legal remedy must be alive for a legislatively fixed period of time."

68. In view of the settled principle, while we hold that the Limitation Act,

1963 is not applicable for initiation of 'Corporate Insolvency Resolution

Process', we further hold that the Doctrine of Limitation and Prescription is

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 37

necessary to be looked into for determining the question whether the

application under Section 7 or Section 9 can be entertained after long delay,

amounting to laches and thereby the person forfeited his claim.

69. If there is a delay of more than three years from the date of cause of

action and no laches on the part of the Applicant, the Applicant can explain

the delay. Where there is a continuing cause of action, the question of

rejecting any application on the ground of delay does not arise.

70. Therefore, if it comes to the notice of the Adjudicating Authority that

the application for initiation of 'Corporate Insolvency Resolution Process'

under section 7 or Section 9 has been filed after long delay, the Adjudicating

Authority may give opportunity to the Applicant to explain the delay within a

reasonable period to find out whether there are any laches on the part of the

Applicant.

71. The stale claim of dues without explaining delay, normally should not

be entertained for triggering 'Corporate Insolvency Resolution Process' under

Section 7 and 9 of the 'I&B Code'.

72. However, the aforesaid principle for triggering an application under

Section 10 of the 'I&B Code' cannot be made applicable as the 'Corporate

Applicant' does not claim money but prays for initiation of 'Corporate

Insolvency Resolution Process' against itself, having defaulted to pay the

dues of creditors.

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 38

In so far it relates to filing of claim before the 'Insolvency Resolution

Professional', in case of stale claim, long delay and in absence of any

continuous cause of action, it is open to resolution applicant to decide

whether such claim is to be accepted or not, and on submission of

resolution plan, the Committee of Creditors may decide such question. If

any adverse decision is taken in regard to any creditor disputing the claim

on ground of delay and laches, it will be open to the aggrieved creditor to file

objection before the Adjudicating Authority against resolution plan and for

its necessary correction who may decide the same in accordance with the.

observations as made above.

73. Coming to merits of present matter, in the case of M/s. Speculum

Plast Pvt. Ltd. Vs. PTC Techno Pvt. Ltd. in Company Appeal (AT) (Insolvency)

No. 47 of 2017, the Adjudicating Authority by impugned order dated 11th

April, 2017 has not decided the question whether Limitation Act, 1963 is

applicable in the proceeding for initiation of 'Corporate Insolvency

Resolution Process' or not and without deciding the same rejected the case

on the ground that the amount legally recoverable is beyond the period of

limitation. It has not been noticed that the invoices raised are of the period

from 1st April, 2013 to 19th September, 2013, and, therefore, default must

have occurred after September, 2013. The 'I&B Code' having come into effect

on 1st December 2016, the Adjudicating Authority was not correct in

dismissing the application on the ground that the application is beyond the

period of limitation.

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 39

74. For the reasons aforesaid, we set aside the impugned order dated 11th

April, 2017 passed by the Adjudicating Authority (National Company Law

Tribunal) New Delhi in Company Petition No. (IB)-41(ND)/2017 and remit

back the case to the Adjudicating Authority, New Delhi to find out whether

the application is otherwise complete or not and, after notice and hearing

the parties, will pass appropriate orders in accordance with law. In case, the

application is complete, the Adjudicating Authority will admit the

application preferred by the Appellants. In case it is incomplete, the

Appellant be granted minimum seven days' time to remove the defects in

terms of proviso to sub-section (5) of Section 9 of the 'I&B Code'.

75. In Parag Gupta Vs. M/s. B K Educational Services Pvt. Ltd. in

Company Appeal (AT) (Insolvency) No. 76 of 2017, the Adjudicating

Authority observed that the. amount haying been paid between the period 1st

October, 2012 and 5th February, 2013, there was nothing on the record to

suggest that it would extend the limitation to recover the same. The Income

Tax Returns filed by 'Corporate Debtor' for the assessment years 2014-15 &

2015-16 were, not taken into consideration as it does not specify that the

short term borrowings of over 8 crores including the loans alleged to have

been given by the Appellants as barred by limitation has taken into

consideration for rejecting the application for non-initiation of 'Corporate

Insolvency Resolution Process', the impugned order dated 25th April, 2017

cannot be sustained.

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 40

76. For the reasons aforesaid, the impugned order dated 25th April, 2017

passed by the Adjudicating Authority in Company Petition No. (IB)-

27(PB)/2017 is set aside and we remit the case to the Adjudicating

Authority who after notice and hearing the parties will consider the

application under Section 7 of the 'I&B Code' preferred by the Appellant- Mr.

Parag Gupta and without going into question of limitation, if application is

complete, will admit the application. In case of any defect, the appellant be

granted seven days' time to remove the defects in terms of proviso to sub-

section (5) of Section 9 of the 'I&B Code. Further, if the application is not

maintainable for any other reasons, the Adjudicating Authority record such

reason.

77. In Ashlay Infrastructure Private Limited Vs. LDS Engineers Pvt. Ltd. in

Company Appeal (AT) (Insolvency) No. 78 of 2017, the Adjudicating

Authority rejected the application preferred by the Appellant on the ground

that it is time barred. The impugned order dated 4th May, 2017 having been

passed on the basis that the Limitation Act, 1963 is applicable for initiation

of 'Corporate Insolvency Resolution Process', the said order cannot be

sustained.

78. We accordingly set aside the impugned order dated 4th May, 2017

passed in Company Petition No. (IB)-77(ND)/ 2017 and remit the case to the

Adjudicating Authority who after notice and hearing the parties will consider

the application preferred by Appellant under Section 9 of the 'I&B Code' and

without going into question of limitation, if application is complete, will

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78 of 2017 41.

admit the application. In case of any defect, the appellant be granted seven

days' time to remove the defects in terms of proviso to sub-section (5) of

Section 9 of the 'l&B Code. Further, if the application is not maintainable for

any other reasons, the Adjudicating Authority may record such reason.

79. All the appeals are allowed with aforesaid observations and directions.

However, in the facts and circumstances, there shall be no order as to cost.

(Balvinder Singh) (Justice S .J. Mukhopadhaya) Member (Technical) Chairperson

NEW DELHI

7th November, 2017

AR

Company Appeals (AT) (Insolvency) Nos. 47, 76 and 78012017