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2020 (7) TMI 753 - Tri - Insolvency and BankruptcyMaintainability of application - initiation of CIRP - Corporate Debtor failed to make repayment of its dues - existence of debt and dispute or not - exclusion of limitation period got extended as period consumed in the course of such proceedings in computing the limitation period - applicability of Section 22(5) of the SICA, 1985 - HELD THAT - It is noted that there is no dispute as regard to supply of goods, quality or price thereof. It is also noted that confirmation of outstanding amount as on 31.12.2004 was made on 11.01.2005 by the Corporate Debtor. It is further noted that no reply either to notice served u/ s 8 of Insolvency Bankruptcy Code, 2016 or to this application has been filed by the Corporate Debtor. Admittedly, the Corporate Debtor was registered with BIFR under SICA, 1985 in the year 2005 and during the course of those proceedings the debt payable by the Corporate Debtor got acknowledged. Thus, there remains no doubt as regard to the amount of outstanding debt. The only aspect which we require to examine is whether debt is due and payable in law or in fact i.e. it is not barred by limitation. It is apparent that this sub-section (5) is applicable for entire Section 22 because of the expression this Section used in this sub-section. Further, this sub-section provides for automatic exclusion of the period of suspension of proceedings or remedy for the purpose of computation of limitation for the enforcement of any right, privilege, obligation or liability u/s 22(1) or by virtue of declaration in sub-section 3 of Section 22 - there are no hesitation in holding that extension of limitation based on exclusion of suspension period as prescribed in 22(5) of SICA, 1985 is applicable only to suit for recovery of money and not to an application filed u/ s 9 of IBC, 2016. In the instant case, the right to sue admittedly arose in 2004 and acknowledgement of debt was made on 11.01.2005. Application u/ s 9 of IBC, 2016 has been filed on 24.11.2017, hence, it is clearly barred by limitation. It emerges from the perusal of the Section 22(1) of SICA, 1985 is that there is exception or exit route to such automatic suspension i.e. proceedings or suit as specified u/ s 22(1) can be instituted or proceeded further with the consent of BIFR/AAIFR. This means that right to remedy is available. Thus, the question arises, in case, a person chooses not to exercise that right/ remedy, can such person still claim exclusion of suspension period for the purposes of computation of limitation. In case, a person who is not a part of such reference and does not exercise such right/ remedy with consent, then, in our considered opinion, such person is not entitled to claim extension of limitation period by virtue of exclusion of period of suspension because in such situation he sits on the fence and watching and not bothered of limitation to secure his right/remedy. Doctrine of latches also applies in this case. In the present case, the Operational Creditor was part of scheme under consideration of BIFR and had also filed a suit no. 315/2009 on 23.03.2009 before Civil Judge, Vadodara seeking a decree for the impugned sum which is still alive as the permission to withdraw the same with a liberty to file afresh has been granted by the Civil Court vide its order dated 05.11.2019. The Applicant sought consent of BIFR by filing MA No. 603 of 2010 which was allowed by the BIFR on 20.11.2012 with the condition that decree awarded by the Civil Court will not be executed without prior approval of BIFR - it is the date of consent by BIFR which is to be considered for the purpose of computation of limitation period even though appeal was filed against such consent for the reason that appeal is continuation of original proceedings. In the present case, the Corporate Debtor confirmed the outstanding balance as on 11.01.2005 though right to sue accrued on earlier date, hence, limitation has to be computed from 11.01.2005. Reference u/s 15 of SICA 1985 was made in 2005 (which has been numbered as 83 of 2005) but neither date of filing nor date of registration thereof is on record, hence, we are left with no option but to estimate date of filing/registration as per the provisions of Section 15 of SICA, 1985 which provide that a reference could be made only on the basis of last Audited Balance Sheet. In the present case, the reference has been made admittedly on the basis of Audited Financial Statement on 31.03.2005 which could have been audited and approved as per the provisions of Companies Act, 1956 latest by 30.09.2005, hence, a reference could be made only thereafter - if we exclude period from filing of reference i.e. 01.10.2005 till 20.11.2012, the time lirnit for filing a fresh suit/ application comes to an end in early 2015 itself after excluding period from 11.01.2005 till 30.09.2005. We further note consent of AAIFR has been taken in Appeal No 76 of 2014 vide order dated 17.09.2014. Even when, this date is considered, the time limit for filing of a fresh suit/ application comes to an end on 06.01.2017 if we take the period from filing of reference i.e. 01.10.2005 till such consent order of AAIFR on 17.09.2014 after excluding the period from 11.01.2005 till 30.09.2005. We again state that even assuming that such extended period is available to present application which has been filed on 24.11.2017, then also, such application is time barred as having been filed after expiry of extended period of limitation. Thus, Considering the legal aspects as well as factual matrix, we hold that in all possible situations, the application remains time barred. The Operational Creditor exited from rehabilitation process of the Corporate Debtor while such rehabilitation was under consideration of BIFR/AAIFR for the simple reason that a substantial hair-cut had to be born. The object of SICA, 1985 was to rehabilitate the sick entity which is also an object of IBC, 2016. In the present case, there is no dispute that the corporate debtor is having financial crunch/ sickness for very long period. The Operational Creditor is also pursuing separate suit for recovery of its money which is still alive. Can such person be allowed or considered eligible for initiating insolvency proceedings having conducted in this fashion. Thus, for this reason also, this application is not maintainable. Application dismissed.
Issues Involved:
1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency & Bankruptcy Code, 2016. 2. Application of the limitation period under the Insolvency & Bankruptcy Code, 2016. 3. Applicability of Section 22(5) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) on the limitation period. 4. Maintainability of the application under Section 9 of the Insolvency & Bankruptcy Code, 2016. Issue-wise Detailed Analysis: 1. Initiation of Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Insolvency & Bankruptcy Code, 2016: The application was filed by the Operational Creditor for initiating CIRP against the Corporate Debtor, claiming a principal debt of ?1,48,11,572/-. The Operational Creditor had supplied printing and packaging material to the Corporate Debtor, with the last supply made on 22.11.2004. Due to financial difficulties, the Corporate Debtor failed to make the payment and was referred to the Board for Industrial and Financial Reconstruction (BIFR) in 2005. The application for CIRP was filed on 24.11.2017 after the repeal of SICA in 2016. 2. Application of the limitation period under the Insolvency & Bankruptcy Code, 2016: The Operational Creditor argued that the limitation period should be extended due to the proceedings under SICA. They cited Section 22(5) of SICA, which allows for the exclusion of the period consumed in such proceedings when computing the limitation period. The Corporate Debtor countered that Section 22(5) of SICA was not applicable, and thus the application was barred by limitation. 3. Applicability of Section 22(5) of the Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) on the limitation period: The Tribunal examined Section 22(5) of SICA, which provides for the exclusion of the period during which proceedings or remedies remain suspended. However, it was determined that this exclusion applies only to suits for recovery of money or enforcement of security, not to applications under Section 9 of the Insolvency & Bankruptcy Code, 2016. The Tribunal noted that the right to sue arose in 2004, and the acknowledgment of debt was made on 11.01.2005. The application was filed on 24.11.2017, which was beyond the limitation period. 4. Maintainability of the application under Section 9 of the Insolvency & Bankruptcy Code, 2016: The Tribunal held that the application was not maintainable as it was time-barred. The Tribunal emphasized that the provisions of the Limitation Act, 1963 apply to the Insolvency & Bankruptcy Code, 2016, as held by the Supreme Court in B.K. Educational Services Private Limited vs. Parag Gupta and Associates. Additionally, the Tribunal noted that the Operational Creditor had exited the rehabilitation process and was pursuing a separate suit for recovery, which indicated an interest in recovery rather than insolvency resolution. This conduct was inconsistent with the objectives of the Insolvency & Bankruptcy Code, 2016. Conclusion: The Tribunal dismissed the application under Section 9 of the Insolvency & Bankruptcy Code, 2016, as it was barred by limitation and not maintainable. The Tribunal also disposed of other related applications as infructuous. Urgent certified copies of the order were directed to be issued upon compliance with requisite formalities.
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