2017 (11) TMI 1524 - Tri - Insolvency and Bankruptcy

Corporate insolvency procedure - whether or not this petition should be admitted u/s 9 when one of the invoices is time barred by the time Company Petition filed? - period of limitation applicable to insolvency procedures - Held that - If limitation is said as not applicable or giving life to time barred debts under the cover of Insolvency and Bankruptcy Code, it will be nothing but opening the lid of uncertainty giving a big hand to the persons not diligent of their rights. If this is the case, tomorrow a person forgets of his remedy many years before will come saying company is to be liquidated basing on a time barred debt. Moreover, so far it is a legitimate expectation of everybody - creditors as well as debtors that time is prescribed for every right of remedy including a remedy for liquidation, therefore lest doctrine of limitation be diluted. It can be an argument that since it is not a suit as mentioned in section 3 of Limitation Act 1963, it can t be applied to the proceedings of IBC. My answer to the point is Tribunals are already counted is equivalent to Courts as long as Tribunals have trappings of courts, likewise when an order is passed giving finality to a controversy, it is as good as decree, therefore any proceeding given finality to a controversy, such judicial proceeding can be like any other suit proceeding, in any event application being included in section 3 of Limitation Act, this petition under IB code shall be construed as suit or application, as the case may be, under Limitation Act. There is a situation where Limitation Act could not reach, that is Constitution, there whenever any writ either under Article 226 or on fundamental rights is filed, since constitution governs every other statute, the Limitation Act will remain applicable to other statutes, for this reason only, delay and laches doctrine has been carved out to meet the situation in constitutional matters. Thus in whatever line so far limitation is applied to winding up cases, in the same line, prescription of limitation is applicable to the Code as well. As long as limitation is not prescribed under any specific enactment, it goes without saying Limitation Act, 1963 is automatically applicable to the Code as well. Company Petition is dismissed with liberty to the petitioner to proceed in respect to the claim within limitation by invoking section 14 of Limitation Act 1963.

Summary

Issues Involved:
1. Application of the Limitation Act, 1963 to the Insolvency and Bankruptcy Code, 2016.
2. Admissibility of a petition under Section 9 of the Insolvency and Bankruptcy Code when one of the invoices is time-barred.

Issue-wise Detailed Analysis:

1. Application of the Limitation Act, 1963 to the Insolvency and Bankruptcy Code, 2016:

The primary issue addressed in this judgment is whether the Limitation Act, 1963 applies to proceedings under the Insolvency and Bankruptcy Code, 2016 (IBC). The Petitioner’s Counsel relied on the judgment in Neelkanth Township and Construction (P.) Ltd. v. Urban Infrastructure Trustees Ltd., arguing that the Limitation Act does not apply to IBC. However, the Tribunal clarified that the Hon'ble NCLAT in that case did not categorically state that the Limitation Act is inapplicable to IBC. Instead, it emphasized that the claim in question was part of a continuous course of action, thus not barred by limitation.

The Tribunal asserted that it is a general and settled proposition in jurisprudence that prosecuting parties cannot seek remedies over time-barred debts. The Tribunal further elaborated that the non-mention of the applicability of the Limitation Act in the IBC does not imply that it is inapplicable. The doctrine of limitation has universal application unless explicitly excluded. The Tribunal emphasized that the Limitation Act has been applied to various major laws, including the Companies Act, 1956, despite the absence of explicit mention.

The Tribunal reasoned that the purpose of the Limitation Act is to ensure that rights not exercised for a long time are considered non-existent and to prevent constant uncertainty and doubt over rights. The Tribunal concluded that since the IBC does not explicitly bar the application of the Limitation Act, it should be understood that the doctrine of limitation applies to the IBC. Consequently, the Tribunal held that the Limitation Act, 1963, is applicable to proceedings under the IBC.

2. Admissibility of a petition under Section 9 of the Insolvency and Bankruptcy Code when one of the invoices is time-barred:

The Tribunal examined whether a petition under Section 9 of the IBC should be admitted when one of the invoices is time-barred. The Petitioner had issued Section 8 notice for two invoices dated 31.07.2014 and 16.09.2014. The petition was filed on 22.08.2017, making the invoice dated 31.07.2014 time-barred by the time of filing.

The Tribunal emphasized that for a petition under Section 9 of the IBC to be admitted, the claim must be within the limitation period at the time of filing the petition. The Tribunal rejected the Petitioner’s argument that since both invoices were within limitation when the Section 8 notice was issued, the claim should be considered within limitation for filing the petition under Section 9. The Tribunal clarified that the debt crystallized by the time the Section 8 notice is given must remain within limitation by the time the petition is filed under Section 9.

The Tribunal held that including a time-barred claim along with a claim within limitation in the petition under Section 9 does not make the entire claim enforceable. The Tribunal drew an analogy with winding-up cases under the Companies Act, 1956, where time-barred debts are not considered for filing winding-up petitions. The Tribunal concluded that the same analogy applies to the IBC, and the inclusion of a time-barred invoice in the claim renders the claim defective.

The Tribunal further noted that the Limitation Act is applied to various statutes, including the Companies Act, 1956, Contract Act, Transfer of Property Act, and Sale of Goods Act, even without explicit mention. The Tribunal reiterated that the doctrine of limitation is based on the principle that rights not exercised for a long time are considered non-existent, and controversies should be restricted to a fixed period to avoid uncertainty.

The Tribunal concluded that the Limitation Act, 1963, is applicable to the IBC, and the petition under Section 9 of the IBC, including a time-barred invoice, is not admissible. The Tribunal dismissed the Company Petition with liberty to the petitioner to proceed with the claim within limitation by invoking Section 14 of the Limitation Act, 1963.