2021 (3) TMI 1183 - SC - Insolvency and Bankruptcy

Maintainability of the proceedings under the SARFAESI Act, pending adjudication in the High Court - Validity of appointment of Special Officer as Administrator over the Financial Creditor, only to hold elections - time limitation - account of the Corporate Debtor had been declared NPA on 31st March, 2013 whereas the application under Section 7 of IBC had been filed on 27th August, 2018, after almost five years and five months from the date of accrual of the cause of action - HELD THAT - There is no rationale for the view that the proceedings initiated by a secured creditor against a borrower under the SARFAESI Act for taking possession of its secured assets, were intended to be excluded from the category of civil proceedings - Even though Section 13 of the SARFAESI Act enables a secured creditor to enforce security interest created in its favour, without the intervention of the Court or Tribunal, the SARFAESI Act does not exclude the intervention of Courts and/or Tribunals altogether. Condonation of delay - Period of limitation under IBC - exclusion of period after the initiation of proceedings under the SARFAESI Act - HELD THAT - Section 14 excludes the time spent in proceeding in a wrong forum, which is unable to entertain the proceedings for want of jurisdiction, or other such cause. Where such proceedings have ended, the outer limit to claim exclusion under Section 14 would be the date on which the proceedings ended - In the instant case, even if it is assumed that the right to sue accrued on 31.3.2013 when the account of Corporate Debtor was declared NPA, the financial creditor initiated proceedings under SARFAESI Act on 18th January 2014, that is the date on which notice under Section 13(2) was issued, proceeded with the same, and even took possession of the assets, until the entire proceedings were stayed by the High Court by its order dated 24th July 2017. The proceedings under Section 7 of the IBC were initiated on 10th July 2018 - since the proceedings in the High Court were still pending on the date of filing of the application under Section 7 of the IBC in the NCLT, the entire period after the initiation of proceedings under the SARFAESI Act could be excluded. If the period from the date of institution of the proceedings under the SARFAESI Act till the date of filing of the application under Section 7 of the IBC in the NCLT is excluded, the application in the NCLT is well within the limitation of three years. Even if the period between the date of the notice under Section 13(2) and date of the interim order of the High Court staying the proceedings under the SARFAESI Act, on the prima facie ground of want of jurisdiction is excluded, the proceedings under Section 7 of IBC are still within limitation of three years. The Chief Metropolitan Magistrate or the Judicial Magistrate, as the case may be, exercising powers under Section 14 of the SARFAESI Act, functions as a Civil Court/Executing Court. Proceedings under the SARFAESI Act would, therefore, be deemed to be civil proceedings in a Court. Moreover, proceedings under the SARFAESI Act under Section 13(4) are appealable to the DRT under Section 18 of the SARFAESI Act. Mr. Dave s argument that proceedings under the SARFAESI Act would not qualify for exclusion under Section 14 of the Limitation Act, because those proceedings were not conducted in a Civil Court, cannot be sustained. Keeping in mind the scope and ambit of proceedings under the IBC before the NCLT/NCLAT, the expression Court in Section 14(2) would be deemed to be any forum for a civil proceeding including any Tribunal or any forum under the SARFAESI Act - Section 5 and Section 14 of the Limitation Act are not mutually exclusive. Even in a case where Section 14 does not strictly apply, the principles of Section 14 can be invoked to grant relief to an applicant under Section 5 of the Limitation Act by purposively construing sufficient cause . It is well settled that omission to refer to the correct section of a statute does not vitiate an order. At the cost of repetition it is reiterated that delay can be condoned irrespective of whether there is any formal application, if there are sufficient materials on record disclosing sufficient cause for the delay. The NCLAT rightly refused to stay the proceedings before the NCLT. The judgment and order of the NCLT does not warrant interference - Appeal dismissed.

Summary

Issues Involved:
1. Whether delay beyond three years in filing an application under Section 7 of IBC can be condoned without an application for condonation of delay under Section 5 of the Limitation Act, 1963.
2. Whether Section 14 of the Limitation Act, 1963 applies to applications under Section 7 of the IBC and if the exclusion of time under Section 14 is available only after the proceedings before the wrong forum terminate.

Detailed Analysis:

Issue 1: Condonation of Delay Beyond Three Years
The court examined whether the delay beyond three years in filing an application under Section 7 of the IBC can be condoned without a formal application under Section 5 of the Limitation Act. It was observed that Section 238A of the IBC makes the provisions of the Limitation Act applicable to proceedings before the NCLT and NCLAT "as far as may be." The court noted that Section 5 of the Limitation Act does not mandate a formal application for condonation of delay, allowing the court to condone delay if sufficient cause is shown. The court emphasized that the expression "sufficient cause" should be construed liberally to advance substantial justice, and acceptance of the explanation for delay should be the rule rather than the exception, provided no negligence or inaction can be imputed to the defaulting party.

Issue 2: Application of Section 14 of the Limitation Act
The court analyzed whether Section 14 of the Limitation Act, which provides for the exclusion of time spent in prosecuting a case in a wrong forum, applies to applications under Section 7 of the IBC. The court held that Section 14 applies to IBC proceedings as the IBC does not exclude the operation of Section 14. The court clarified that Section 14 excludes the time spent in bona fide prosecution of proceedings in a wrong forum, which is unable to entertain the case due to defect of jurisdiction or other similar reasons.

The court addressed the argument that Section 14 requires the earlier proceedings to have ended before its benefit can be claimed. It was held that the substantive provisions of Section 14 do not mandate that the earlier proceedings must have terminated; rather, the explanation to Section 14 merely restricts the period of exclusion to the time between the initiation and termination of the earlier proceedings.

The court also discussed the nature of proceedings under the SARFAESI Act, concluding that they qualify as "civil proceedings" under Section 14 of the Limitation Act. It was noted that proceedings under the SARFAESI Act, though initiated without court intervention, involve judicial processes and are appealable to the DRT, thus fitting within the ambit of civil proceedings.

The court rejected the argument that proceedings under the SARFAESI Act do not qualify for exclusion under Section 14 because they are not conducted in a civil court. It was held that the expression "court" in Section 14(2) should be interpreted broadly to include any forum for civil proceedings, including tribunals and forums under the SARFAESI Act.

Conclusion:
The Supreme Court dismissed the appeal, upholding the NCLAT's decision that the application under Section 7 of the IBC was within the limitation period after excluding the time spent in proceedings under the SARFAESI Act. The court emphasized that the provisions of the Limitation Act apply to IBC proceedings to the extent feasible, and the principles of Section 14 can be invoked to grant relief even if Section 14 does not strictly apply. The judgment clarified that the benefit of Section 14 is available even if the earlier proceedings have not formally ended, provided they were stayed by a court for want of jurisdiction.