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2020 (11) TMI 799 - AT - Insolvency and BankruptcyValidity of CIRP initiated - fraudulent or malicious intent or purpose other than Resolution of Insolvency and Liquidation of the Corporate Debtor or otherwise? - time limitation u/s 7 - HELD THAT - Although the suit was filed in time the Winding up Petition was beyond three years of the default and when such Winding up Petition was transferred in view of the Rules to the NCLT to convert the same into a proceeding under Section 7 of IBC, it was found that as the Winding up Petition itself was time-barred from the date of default, the same could not be proceeded further as Application under Section 7. When developments in the present matter are seen, if IBHL classified the Borrower Entities as NPA in November, 1997, even if the suits were filed in 1998 and 1999, that would not be relevant or helpful to extend time of Limitation for the purpose of filing of Application under Section 7 of IBC which is independent proceeding required to be filed as per Article 137 of the Limitation Act within three years of default. When time begins to run it can only be extended in the manner provided in the Limitation Act, has been held. Proceedings under the IBC are not execution proceedings either for the decree which was obtained or for execution of the Certificates of Recovery which have been issued by DRT. The Learned Counsel for the Financial Creditor has not shown under which provision of Limitation Act, time which had started running in November, 2007, could be extended. If filing of Suit or O.A. does not extend time, or give right to exclude period for a Winding up Proceeding, it can not extend period for an independent right under IBC. Consequently passing of Decree or issue of Recovery Certificate will not give fresh right to trigger IBC. There is substance in the submissions made by the Learned Counsel for the Appellant that the Application in the present matter was hopelessly time-barred. The Adjudicating Authority failed to see that the Financial Creditor had not indicated date of default in the format. The Adjudicating Authority was duty bound under Section 3 of the Limitation Act, 1963 to suo motu consider if or not the Application under Section 7 of IBC was within Limitation by considering if or not the debt said to be in default was within Limitation. The Impugned Order is quashed and set aside - Appeal allowed.
Issues Involved:
1. Whether the Application was filed and CIRP initiated fraudulently or with malicious intent or purpose other than Resolution of Insolvency and Liquidation of the Corporate Debtor? 2. Whether the Application under Section 7 filed was within Limitation? Issue-wise Detailed Analysis: 1. Fraudulent or Malicious Intent: The Appellant initially raised the issue of whether the Application was filed and CIRP initiated fraudulently or with malicious intent. However, during the arguments, this issue was not pursued or argued by the Learned Counsel for the Appellant. The Tribunal noted that the issue did not appear to have been duly raised with required particulars and averments in the Appeal, and thus, it was not necessary to delve into this aspect. 2. Limitation: The primary issue addressed was whether the Application under Section 7 of the Insolvency and Bankruptcy Code (IBC) was within the prescribed limitation period. The Appellant argued that the Application was time-barred as the default occurred in November 1997, and the Application was filed on 05th October 2018, which is beyond the three-year limitation period stipulated under Article 137 of the Limitation Act, 1963. The Tribunal examined the relevant legal precedents and the chronology of events: - The Corporate Debtor was classified as a Non-Performing Asset (NPA) in November 1997. - Civil suits were filed in 1998 and 1999, and a compromise was recorded in March 2007. - Despite the compromise, the Corporate Debtor defaulted, leading to the issuance of a Demand Notice under SARFAESI Act in September 2007 and a Possession Notice in January 2008. - Recovery Certificates were issued by the Debt Recovery Tribunal (DRT) in June 2017. The Tribunal referred to several judgments, including: - B.K. Educational Services Pvt. Ltd. vs. Parag Gupta & Associates: The right to sue accrues when a default occurs, and if the default occurred over three years prior to the filing of the Application, it would be barred under Article 137 of the Limitation Act. - Gaurav Hargovindbhai Dave vs. Asset Reconstruction Company (I) Ltd. & Anr.: Filing of suits or OAs does not extend the limitation period for filing an Application under Section 7 of IBC. - Jignesh Shah vs. Union of India: A time-barred Winding up Petition cannot be resuscitated into a Section 7 petition under the Code by virtue of its transfer. The Tribunal concluded that the filing of suits or OAs and the issuance of Recovery Certificates did not extend the limitation period. The right to sue under IBC is triggered by the initial default, and subsequent legal actions do not reset the limitation clock. Consequently, the Application filed in 2018 was deemed time-barred. Conclusion: The Tribunal allowed the Appeal and quashed the Impugned Order admitting the Application under Section 7 of IBC. The Corporate Debtor was directed to be handed back to its Directors, and the Financial Creditor was held liable for the fees and CIRP expenses incurred.
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