LIMITATION IN IBC FOR CASE COVERED UNDER SICA

[Dr. Sanjiv Agarwal]

In SABARMATI GAS LIMITED VERSUS SHAH ALLOYS LIMITED - 2023 (1) TMI 195 - SUPREME COURT , the Apex Court dealt with period of limitation under Insolvency & Bankruptcy Code, 2016 in case covered under section 22 of Sick Industrial Companies (Special Provisions) Act, 1983 (SICA). It held that in computation of period of limitation in regard to an application filed under section 9, period during which operational creditor’s right to proceed against or sue corporate debtor remain suspended by virtue of section 22(1) of Sick Industrial Companies (Special Provisions) Act, 1985 (SICA) can be excluded, as provided under section 22(5) of SICA.

According to section 9 of IBC Code, 2016 which deals with Application for Initiation of Corporate Insolvency Resolution Process by Operational Creditor, after the expiry of the period of ten days from the date of delivery of the notice or invoice demanding payment under section 8(1), if the operational creditor does not receive payment from the corporate debtor or notice of the dispute under section 8(2), the operational creditor may file an application before the Adjudicating Authority for initiating a corporate insolvency resolution process. The corporate insolvency resolution process shall commence from the date of admission of the application under sub-section (5) of this section.

In terms of section 238A inserted w.e.f. 06.06.2018, provisions of Limitation Act, 1963 apply to IBC proceedings. Accordingly, the provisions of the Limitation Act, 1963 (36 of 1963) shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority, the National Company Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, as the case may be.

In the instant case, following questions of law arose for court’s consideration:

(i)   Whether in computation of the period of limitation in regard to an application filed under Section 9, IBC the period during which the operational creditor’s right to proceed against or sue the corporate debtor that remain suspended by virtue of Section 22 (1) of the Sick Industrial Companies (Special Provisions Act, 1985) (SICA) can be excluded, as provided under Section 22 (5) of SICA?

(ii)  Whether the respondent has raised a dispute which is describable as 'pre-existing dispute’ between itself and the appellant warranting dismissal of application under Section 9 of the IBC at the threshold?

In this case, Sabarmati is operational creditor and supplied gas to the respondent who defaulted in making payment of invoices. The respondent was declared a sick company under BIFR.

The appellant issued a demand notice demanding an outstanding payment and filed an application under Section 9 before NCLT. The NCLT by an order dismissed said application as being barred by limitation and existence of pre-existing dispute between parties. The NCLAT upheld the decision of the NCLT.

Being aggrieved by the NCLAT order, the appellant had approached the Supreme Court by way of appeal. The appellant submitted that in view of section 22 of SICA, there was moratorium on the respondent and appellant could not have proceeded against the respondent for outstanding dues without obtaining the permission of the BIFR. The appellant further submitted that the NCLT and NCLAT had failed to appreciate that the respondent was admitted as sick company by the BIFR order and hence, by virtue of section 22(5), SICA the period of suspension under SICA viz. From 31.08.2010 to 01.12.2016 should have been excluded when calculating the period of limitation and therefore, application filed on 20.08.2018 was well within the limitation.

The Apex Court observed that when the limitation period for initiating CIRP under the section 9, is to be reckoned from the date of default, as opposed to the date of commencement of IBC and the period prescribed therefor, is three years as provided by section 137 of the Limitation Act, 1963 and the same would commence from the date of default and is extendable only by application of section 5 of the Limitation Act, 1963 it is incumbent on the Adjudicating Authority to consider the claim for condonation of the delay when once the proceeding concerned is found filed beyond the period of limitation.

Further, as relates Section 5 of the Limitation Act showing ‘sufficient cause’ is the only criterion for condoning delay. ‘Sufficient Cause’ is the cause for which a party could not be blamed. We have already taken note of the legal bar for initiation of proceedings against an industrial company by virtue of Section 22 (1), SICA and obviously, when a party was thus legally disabled from resorting to legal proceeding for recovering the outstanding dues without the permission of BIFR and even on application permission therefor was not given the period of suspension of legal proceedings is excludable in computing the period of limitation for the enforcement of such right in terms of Section 22(5), SICA. In the absence of provisions for exclusion of such period in respect of an application under Section 9, IBC, despite the combined reading of Section 238A, IBC and the provisions under the Limitation Act what is legally available to such a party is to assign the same as a sufficient cause for condoning the delay under Section 5 of the Limitation Act. In such eventuality, in accordance with the factual position obtained in any particular case viz., the period of delay and the period covered by suspension of right under Section 22 (1), SICA etc., the question of condonation of delay has to be considered lest it will result in injustice as the party was statutorily prevented from initiating action against the industrial company concerned.

It held that when a party was legally disabled from resorting to legal proceedings for recovering an outstanding dues without permission of BIFR, period of suspension of legal proceedings was excludable in computing period of limitation. However, since there was a pre-existing dispute between parties prior to filing of Section 9 application, dismissal of application under Section 9 on ground of ‘pre-existing dispute’ could not be held to be patently illegal or perverse.

The appeal stood dismissed.