2019 (9) TMI 1121 - SC - Insolvency and Bankruptcy

Winding up petition - unable to recover debts - Period of limitation - 3 years or 12 years - Section 238A of IBC - whether the Winding up Petition, on the date that it was filed, is barred by lapse of time? HELD THAT - 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 a winding up proceeding. In law, when time begins to run, it can only be extended in the manner provided in the Limitation Act - For example, an acknowledgement of liability under Section 18 of the Limitation Act would certainly extend the limitation period, but a suit for recovery, which is a separate and independent proceeding distinct from the remedy of winding up would, in no manner, impact the limitation within which the winding up proceeding is to be filed, by somehow keeping the debt alive for the purpose of the winding up proceeding. In the Winding up Petition itself, what is referred to is the fall in the assets of La-Fin to being worth approximately INR 200 crores as of October, 2016, which again does not correlate with 3rd November, 2015, being the date on which the statutory notice was itself issued. This again is only for the purpose of appointing an Officer of the Court as Official Liquidator in order to manage the day-to-day affairs and otherwise secure and safeguard the assets of the Respondent company. There is no averment in the petition that thanks to these or other facts the Company s substratum has disappeared, or that the Company is otherwise commercially insolvent. It is clear therefore that even on facts, the company s substratum disappearing or the commercial insolvency of the company has not been pleaded. Winding up Petition filed beyond the period of three-years mentioned in Article 137 of the Limitation Act is time-barred, and cannot therefore be proceeded with any further.

Summary

Issues Involved:
1. Whether the Winding up Petition filed by IL&FS against La-Fin is time-barred under the Limitation Act, 1963.
2. Whether the filing of a suit for specific performance impacts the limitation period for a winding up petition.
3. Whether the commercial insolvency or loss of substratum of La-Fin impacts the limitation period for the winding up petition.

Issue-wise Detailed Analysis:

1. Whether the Winding up Petition filed by IL&FS against La-Fin is time-barred under the Limitation Act, 1963:

The court examined the applicability of the Limitation Act, 1963 to Section 7 applications under the Insolvency and Bankruptcy Code, 2016 (the Code). It was highlighted that the Limitation Act applies to all Section 7 applications as per the judgment in B.K. Educational Services Pvt. Ltd. v. Parag Gupta and Associates. The court noted that the Winding up Petition filed by IL&FS on 21st October 2016 was beyond the three-year period prescribed by Article 137 of the Limitation Act, as the cause of action arose in August 2012. The court concluded that a time-barred winding up petition does not get resuscitated merely by being transferred to the NCLT under the Code. Therefore, the Winding up Petition filed by IL&FS was time-barred.

2. Whether the filing of a suit for specific performance impacts the limitation period for a winding up petition:

The court discussed various judgments to determine whether the filing of a suit for specific performance impacts the limitation period for a winding up petition. It was emphasized that the existence of a suit does not extend or revive the period of limitation for a winding up petition. The court cited several cases, including Hariom Firestock Limited v. Sunjal Engineering Pvt. Ltd., Ferro Alloys Corporation Ltd. v. Rajhans Steel Ltd., and Indo Alusys Industries v. Assotech Contracts (India) Ltd., which established that a suit for recovery does not impact the limitation period for a winding up petition. The court concluded that the filing of a suit for specific performance does not extend the limitation period for the winding up petition.

3. Whether the commercial insolvency or loss of substratum of La-Fin impacts the limitation period for the winding up petition:

The court examined whether the commercial insolvency or loss of substratum of La-Fin impacts the limitation period for the winding up petition. It was argued that the cause of action for the winding up petition arose when La-Fin's assets significantly decreased in value. However, the court clarified that the trigger for limitation is the date of default in payment of the debt. The court referred to M/s Madhusudan Gordhandas & Co. v. Madhu Woollen Industries Pvt. Ltd. and Pradeshiya Industrial & Investment Corporation of U.P. v. North India Petrochemicals Ltd., which established that the inability to pay debts in the commercial sense is a consideration at the admission stage of the winding up petition. The court concluded that the date of default is the relevant trigger for limitation purposes, and commercial insolvency or loss of substratum does not impact the limitation period.

Conclusion:

The court allowed the Civil Appeal (Diary No. 16521 of 2019) and disposed of the Writ Petition (Civil) No. 455 of 2019, holding that the Winding up Petition filed on 21st October 2016 was time-barred and could not be proceeded with further. The impugned judgments of the NCLAT and the NCLT were set aside. Consequently, the Special Leave Petition (Diary No. 13468 of 2019) and Transfer Petition (Civil) No. 817 of 2019 were disposed of as having become infructuous.