Punjab National Bank vs Vijay Sitaram Dandnaik

REPORTABLE

IN THE SUPREME COURT OF INDIA CIVIL APPELLATE JURISDICTION

CIVIL APPEAL NO.2277 OF 2021

PUNJAB NATIONAL BANK …APPELLANT(S)

VERSUS

MR. VIJAY SITARAM DANDNAIK & ANR. ...RESPONDENT(S)

ORDER

1. The order of admission of their petition under Section 7 of the

Insolvency and Bankruptcy Code, 2016 (for short “IBC”) passed by

the National Company Law Tribunal (for short “NCLT”), having been

reversed by the National Company Law Appellate Tribunal (for short Signature Not Verified Digitally signed by DEEPAK SINGH Date: 2022.10.01 10:27:23 IST Reason:

“NCLAT”) on the ground that the application was barred by

limitation, the Financial Creditor­Punjab National Bank has come 2

up with the above appeal.

2. We have heard Shri Dhruv Mehta, learned senior counsel

appearing for the appellant and Shri Rahul Totala, learned counsel

appearing for the respondents.

3. The appellant herein filed a petition under Section 7 IBC

against M/s Jailaxmi Sugar Products Pvt. Limited, the Corporate

Debtor, who is the second respondent herein claiming, inter alia, (i)

that vide sanction letters dated 07.05.2010 and 28.09.2010, a term

loan was sanctioned to the second respondent herein; (ii) that by

a letter dated 17.09.2011, restructuring of the existing term loans

and fresh sanction of term loan was granted to the Corporate

Debtor; (iii) that the Corporate Debtor defaulted in repayment and

became a NPA on 31.03.2013; (iv) that the appellant issued a

demand notice dated 30.04.2013 under Section 13(2) of the

Securitisation and Reconstruction of Financial Assets and

Enforcement of Security Interest Act, 2002; (v) that the Corporate

Debtor also executed Balance and Security Confirmation letters

dated 03.07.2014 and 17.06.2017; (vi) that the appellant, along with

the Union Bank of India also filed an application in O.A. No.185 of

2014 on the file of the DRT, Pune for the issue of a certificate of

recovery; (vii) that the original application was allowed by DRT, Pune 3

by an order dated 01.11.2016, directing the Corporate Debtor and

others including respondent No.1 herein to jointly and severally pay

to the appellant herein, a sum of around Rs.45 cores together with

interest @16.25% per annum (apart from the amount payable to

Union Bank of India); (viii) that the total amount outstanding from

the Corporate Debtor as on 13.08.2019 was Rs.108,34,33,364.19;

and (ix) that in a parallel proceeding, the High Court of Judicature

at Bombay had passed an order dated 04.01.2018 directing the

winding up of the Corporate Debtor.

4. By an order dated 06.11.2019, NCLT admitted the petition of

the appellant herein, filed under Section 7 IBC. Challenging the

order of admission, the first respondent herein, who claims to be a

50% shareholder, promoter, director and creditor of the Corporate­

Debtor filed an appeal before NCLAT. By the order dated 02.03.2021

impugned in this appeal, the NCLAT set aside the order of the NCLT

on the ground that the claim of the appellant­Financial Creditor was

barred by limitation. Aggrieved by the said order, the Financial

Creditor is on appeal before us.

5. Before the NCLAT, the first respondent raised a preliminary

objection that in the light of the order of winding up passed by the

High Court of Judicature at Bombay, an application under Section 7 4

IBC was not maintainable. But the said contention raised by the

first respondent was rejected by NCLAT on the basis of the decision

of this Court in Jaipur Metals and Electricals Employees

Organization vs. Jaipur Metals and Electricals Ltd. & Ors.1

6. After overruling the objection relating to maintainability raised

on the basis of the order of winding up, NCLAT took up for

consideration the question of limitation. NCLAT opined that the

decision of this Court in Babulal Vardharji Gurjar vs. Veer Gurjar

Aluminium Industries Pvt. Ltd. & Anr.2, clinched the issue on the

question of limitation and that the application under Section 7, filed

on 10.10.2019 was beyond a period of three years from the date of

default (NPA) namely 31.03.2013. The Balance and Security

Confirmation Letter dated 17.06.2017 was held by NCLAT to have

been given after the expiry of three years from the date of default

and as a consequence, Section 18 of the Limitation Act was also

held to be inapplicable to the case of the appellant. Hence the

present appeal.

6. But a perusal of the records and a careful consideration of the

contentions raised on both sides show that NCLAT failed to take

note of certain important aspects, both on fact and on law. Section

1 (2019) 4 SCC 227 2 (2020) 15 SCC 1 5

7(1) of the IBC enables a financial creditor to initiate corporate

insolvency resolution process “when a default has accrued”. The

Explanation under sub­Section (1) of Section 7 makes it clear

that a default includes a default in respect of a financial debt

owed not only to the applicant­Financial Creditor but to any

other financial creditor of the Corporate Debtor. The fact that

the corporate debtor has been ordered by the High court of

Judicature at Bombay to be wound up, is proof enough to show that

the case falls under the category mentioned in the Explanation to

section 7(1).

7. The word “default” is defined in Section 3(12) of the IBC to

mean “non­payment of debt when whole or any part or instalment of

the amount of debt has become due and payable and is not paid by

the debtor or the corporate debtor, as the case may be.”

8. By Act 26 of 2018, Section 238A was inserted in the IBC to

provide that the provisions of the Limitation Act, 1963 shall, as far

as may be, apply to the proceedings or appeals before the

Adjudicating Authority and the NCLAT. By virtue of the above

amendment, the doubt if any, on the question of applicability of the

law of limitation to the proceedings under the IBC, got cleared.

9. It may be noted that different provisions of IBC, 2016 came into 6

force on different dates. Sections 4 to 32, Sections 60 to 77, Sections

198, 231 and 236 to 238 came into force on 01.12.2016, vide SO

No.3594 (E ) dated 30.11.2016.

10. Act No.26 of 2018, by which Section 238A was inserted, came

into force on 06.06.2018. Therefore, a question arose in B.K.

Educational Services Private Limited vs. Parag Gupta and

Associates3 as to whether the provisions of the Limitation Act, 1963

would apply to applications filed under Sections 7/9 of the IBC on

and from its commencement on 01.12.2016 till 06.06.2018. This

Court took note of Section 3(37) of the IBC which makes a reference

to the Companies Act, 2013, insofar as words and expressions not

defined in the IBC are concerned and made a reference to Sections

408 and 424 of the Companies Act, 2013 and came to the

conclusion that by virtue of Section 433 of the Companies Act, 2013,

the provisions of the Limitation Act will apply even to proceedings

initiated before the insertion of Section 238A. As a consequence, this

Court held that Article 137 of the Schedule to the Limitation Act,

which prescribes a period of three years from the date “when the

right to apply accrues”, to any application for which no period of

limitation is provided elsewhere in the Schedule, will be applicable.

3 (2019) 11 SCC 633 7

10. The ratio in B.K. Educational Services (supra), found

elaboration in Jignesh Shah and Anr. vs. Union of India and

Anr.4, where this Court held a petition for winding up to be barred

by limitation, as it was filed beyond a period of three years from the

date on which the cause of action, as mentioned in an already

instituted suit for specific performance/damages arose. Two

important principles could be deduced from the decision in Jignesh

Shah (supra). They are: (i) a suit for recovery based upon a cause of

action that is within limitation, cannot in any manner impact the

separate and independent remedy of winding up proceedings and

hence the proceeding for winding up should also have been initiated

before the expiry of the period of limitation; and (ii) in law, when

time begins to run, it can only be extended in the manner provided

in the Limitation Act, say for instance, an acknowledgment of

liability under Section 18 of the Limitation Act.

11. After Jignesh Shah (supra), this Court was concerned in

Babulal Vardharji Gurjar (supra), with a case where one of the

questions that came up for consideration was whether the period of

limitation for filing an application under Section 7 of the IBC, would

be different in the case of a debt secured by a mortgage. For

4 (2019) 10 SCC 750 8

answering the said question, this Court considered all previous

decisions of this Court and enunciated the principles of law as

culled out from those decisions in paragraph 32 as follows:

“32. When Section 238­A of the Code is read with the above­ noted consistent decisions of this Court in Innoventive Industries, B.K. Educational Services, Swiss Ribbons, K. Sashidhar, Jignesh Shah, Vashdeo R. Bhojwani, Gaurav Hargovindbhai Dave and Sagar Sharma respectively, the following basics undoubtedly come to the fore:

(a) that the Code is a beneficial legislation intended to put the corporate debtor back on its feet and is not a mere money recovery legislation;

(b) that CIRP is not intended to be adversarial to the corporate debtor but is aimed at protecting the interests of the corporate debtor;

(c) that intention of the Code is not to give a new lease of life to debts which are time­barred;

(d) that the period of limitation for an application seeking initiation of CIRP under Section 7 of the Code is governed by Article 137 of the Limitation Act and is, therefore, three years from the date when right to apply accrues;

(e) that the trigger for initiation of CIRP by a financial creditor is default on the part of the corporate debtor, that is to say, that the right to apply under the Code accrues on the date when default occurs;

(f) that default referred to in the Code is that of actual non­ payment by the corporate debtor when a debt has become due and payable; and

(g) that if default had occurred over three years prior to the date of filing of the application, the application would be time­barred save and except in those cases where, on facts, the delay in filing may be condoned; and

(h) an application under Section 7 of the Code is not for enforcement of mortgage liability and Article 62 of the Limitation Act does not apply to this application.”

12. After answering the question relating to a debt secured by a

mortgage as aforesaid, this Court took up for consideration in

Babulal, the question regarding applicability of Section 18 of the

Limitation Act. Though the decision in Jignesh Singh was by a 9

three member Bench which held in paragraph 21 of its decision that

“in law when time begins to run it can only be extended in the manner

provided in the Limitation Act”, it was held in Babulal (by a 2

member Bench) that Limitation would begin to run from the date of

NPA itself. To come to the said conclusion, this Court referred to the

decision in Vashdeo R. Bhojwani vs. Abhyudaya Co­operative

Bank Ltd. & Anr.5

13. But Vashdeo R. Bhojwani (supra) was a case where the debt

was declared as NPA in 1999 and a Recovery Certificate was issued

in 2001, but the petition under Section 7 IBC was filed in 2017. It is

only because of this, that this Court held in Vashdeo R. Bhojwani

that when the Recovery Certificate dated 24.12.2001 was issued,

that Certificate injured effectively and completely the appellant’s

rights, as a result of which limitation would have begun ticking.

14. In other words, this Court found in Vashdeo R. Bhojwani,

that the application under Section 7 was filed beyond a period of

three years from the date of the certificate of recovery and not from

the date of declaration of NPA. Therefore, the somewhat discordant

note struck in Babulal, did not and could not have altered the ratio

laid down in paragraph 21 of Jignesh Shah. The cloud of doubt

5 (2019) 9 SCC 158 10

created by Babulal with regard to the applicability of Section 18 of

the Limitation Act stood cleared subsequently in Asset

Reconstruction Company (India) Limited vs. Bishal Jaiswal and

Anr.6 , wherein this Court went to the extent of holding that an

entry in the balance sheet of the company could also be treated as

an acknowledgment in writing, subject however to any caveat found

in the accompanying reports.

15. In any case, this Court clarified in Dena Bank vs. C.

Shivakumar Reddy and Another7 that Babulal was rendered in

the particular facts of the case. It will be relevant to take note of the

discussion in paragraph 105 to 107 of the decision in Dena Bank

(supra) which reads as follows:

“105. The judgment of this Court in Babulal Vardharji Gurjar was rendered in the facts of the aforesaid case, where the date of default had been mentioned a 8­7­ 2011 being the date of NPA and it remained undisputed that there had neither been any other date of default stated in the application nor had any suggestion about any acknowledgment been made.

106. In the backdrop of the aforesaid facts, this Court observed that even if Section 18 of the Limitation Act and principle thereof were applicable, the same would not apply to the application under consideration, in view of the averments regarding default therein and for want of any other averment with regard to acknowledgment.

107. It is well settled, that a judgment is a precedent for the issue of law that is raised and decided and not any observations made in the facts of the case. As very aptly penned by V. Sudhish Pai in Constitutional Supremacy­A Revisit,

6 (2021) 6 SCC 366 7 (2021) 10 SCC 330 11

“Judicial utterances/pronouncements are in the setting of the facts of a particular case. To interpret words and provisions of a statute it may become necessary for Judges to embark upon lengthy discussions, but such discussion is meant to explain not define. Judges interpret statutes, their words are not to be interpreted as statutes.” The aforesaid passage was extracted and incorporated as part of the judgment of this Court in Sesh Nath Singh.”

16. The correctness of the decision in Dena Bank (supra) was

questioned by a corporate debtor in Kotak Mahindra Bank Ltd.

Vs. A. Balakrishnan8 wherein it was contended that the decision in

Dena Bank (supra) was per incuriam, on the ground it did not take

into account sub­Sections (22) and (22A) of Section 19 of the

Recovery of Debts Due to Banks and Financial Institutions Act,

1993 (hereinafter referred to as DRT Act) as well as Clauses (6), (10),

(11) and (12) of Section 3, Clauses (7) and (8) of Section 5, Section 6

and Section 14(1A) of IBC. While rejecting the said contention, this

Court reiterated in no uncertain terms in Kotak Mahindra Bank

(supra) that a person would be entitled to initiate CIRP within a

period of three years from the date on which the recovery certificate

is issued by DRT.

17. Therefore, Dena Bank holds the field as on date. In the case on

hand, the order of the Debt Recovery Tribunal in the Original

Application filed by the appellant under Section 19 of the Act, 1993,

8 (2020) SCC OnLine SC 706 12

is dated 01.11.2016. It is only thereafter that the Corporate Debtor

issued Balance and Security Confirmation letter dated 17.06.2017,

apart from making a request for restructuring the loan. Therefore,

the application filed by the appellant under Section 7 was clearly

within three years from the date on which the “right to apply” in

terms of Article 137 accrued. Hence the impugned order of the

NCLAT, which places heavy reliance only upon Babulal, is not

correct.

18. Before parting, we cannot resist the temptation to point out an

incongruity in the way the law has developed. The Limitation Act,

1963, as is well understood, extinguishes the remedy and not the

right. This is why the Act itself contains several provisions for the

exclusion of time, while computing the period of limitation.

19. Consistently this Court has held that the initiation of CIRP under

the IBC is to put the corporate debtor back on its feet, by retaining the

substratum, even while replacing the management with a new team

(Resolution Applicant). In other words, the object of IBC has been

understood to be something that is beneficial for the corporate debtor

so that it continues to survive as a going concern. As pointed out by

this Court in Innoventive Industries Ltd. vs. ICICI Bank & Anr.9,

“…the scheme of the Code, therefore, is to make an attempt, by 9 (2018) 1 SCC 407 13

divesting the erstwhile management of its powers and vesting it in a

professional agency, to continue the business of the corporate body as a

going concern until a resolution plan is drawn up, in which event the

management is handed over under the plan so that the corporate body

is able to pay back its debts and get back on its feet…” (paragraph 33

of the decision).

20. In other words, IBC is projected as a law which enables the

financial/operational creditor to initiate CIRP, not for helping himself

out with the recovery of the debt due to him, but for helping the

corporate debtor to survive and continue in business. A

financial/operational creditor does not go to court or other forum with

the altruistic mission of helping the corporate debtor to continue as a

going concern. But after repeatedly holding that the proceedings under

the IBC are not in substance, proceedings for recovery of money, this

Court and the statute have effectively applied the law of limitation,

which was intended to apply to proceedings for enforcement of rights.

21. It may be pointed out that the Schedule to the Limitation Act,

1963 is divided into three divisions. The First division relates to suits,

the Second division relates to appeals and the Third division relates to

applications. The First division which relates to Suits is divided into

10 parts which deal respectively with:­ 14

(i) Suits relating to accounts;

(ii) Suits relating to contracts;

(iii) Suits relating to declarations;

(iv) Suits relating to decrees and instruments;

(v) Suits relating to immovable property;

(vi) Suits relating to movable property;

(vii) Suits relating to Tort;

(viii) Suits relating to Trust and Trust property;

(ix) Suits relating to miscellaneous matters; and

(x) Suits for which no period is prescribed.

22. The Second division of the Schedule to the Limitation Act deals

with appeals. The Third division of the Schedule to the Limitation Act

is again divided into two parts, with Part­I dealing with applications in

specified cases and Part­II dealing with other applications.

23. For the law of limitation, the remedy is the goal post and

the right is the sign post from where the journey commences. A

person initiating any proceeding in a court of law must show the

existence of both a right in himself and a remedy for himself, but the

IBC is a law where the sign post namely the right is for the financial/

operational creditor and the goal post namely the remedy, is for the

corporate debtor, though the creditor may also recover a portion of his

debt after having a hair­cut, if not a tonsure. This incongruity has

perhaps led this Court undertaking an arduous journey through the

path of limitation and trying to negotiate its way through several bad

patches.

24. Now coming back to the case on hand, the application filed by 15

the appellant­Bank under Section 7 IBC was within the period of

limitation. Therefore this appeal is allowed and the impugned order of

the NCLAT dated 02.03.2021 is set aside. No order as to costs.

…………………………….J. (S. Abdul Nazeer)

…………………………….J. (V. Ramasubramanian)

New Delhi August 30, 2022 16

ITEM NO.20 COURT NO.4 SECTION XVII

S U P R E M E C O U R T O F I N D I A RECORD OF PROCEEDINGS

Civil Appeal No(s). 2277/2021

PUNJAB NATIONAL BANK Appellant(s)

VERSUS

VIJAY SITARAM DANDNAIK & ANR. Respondent(s)

IA No. 72609/2021 - EX-PARTE STAY IA No. 103032/2022 - INTERVENTION/IMPLEADMENT)

Date : 30-08-2022 This matter was called on for hearing today.

CORAM :

HON'BLE MR. JUSTICE S. ABDUL NAZEER HON'BLE MR. JUSTICE V. RAMASUBRAMANIAN

For Appellant(s) Mr. Dhruv Mehta, Sr. Adv.

Ms. Kusum Lata, AOR Mr. Mahesh K. Chaudhary, Adv.

Mr. Sushmita Chaudhary, Adv.

Ms. Sushma Das, Adv.

For Respondent(s) Mr. Rahul Totala, Adv.

Mr. Rohit Anil Rathi, AOR

UPON hearing the counsel the Court made the following O R D E R The appeal is allowed in terms of the signed Reportable order.

Pending applications, if any, also stand disposed of.

(NEELAM GULATI) (KAMLESH RAWAT) ASTT. REGISTRAR-cum-PS COURT MASTER (NSH)

(Signed Reportable order is placed on the file)