9911796707
TMI Blog2017 (12) TMI 454X X X X Extracts X X X X X X X X Extracts X X X X ..... cating Authority that the application for initiation of 'Corporate Insolvency Resolution Process' under section 7 or Section 9 has been filed after long delay, the Adjudicating Authority may give opportunity to the Applicant to explain the delay within a reasonable period to find out whether there are any laches on the part of the Applicant. The stale claim of dues without explaining delay, normally should not be entertained for triggering 'Corporate Insolvency Resolution Process' under Section 7 and 9 of the 'I & B Code'. However, the aforesaid principle for triggering an application under Section 10 of the 'I & B Code' cannot be made applicable as the 'Corporate Applicant' does not claim money but prays for initiation of 'Corporate Insolvency Resolution Process' against itself, having defaulted to pay the dues of creditors. In so far it relates to filing of claim before the Insolvency Resolution Professional', in case of stale claim, long delay and in absence of any continuous cause of action, it is open to resolution applicant to decide whether such claim is to be accepted or not, and on submission of resolution plan, the Committee of Creditors may decide such question. ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ;single law', independent of any other law including the Limitation Act. 5. On the other hand, according to learned counsel for the Respondents-'Corporate Debtor(s)' the Limitation Act, 1963 is applicable for triggering 'Corporate Insolvency Resolution Process' under 'I B Code' which is to be read in conjunction with the provisions of the Companies Act, 2013 and other Acts, as far as they are applicable. 6. It was submitted that the 'Adjudicating Authority', as defined in sub-section (1) of Section 5 of the 'I B Code' being 'National Company Law Tribunal' as constituted under Section 408 of the Companies Act, 2013, the provisions of Chapter XXVII of the Companies Act, 2013 including Section 433 of the said Act are applicable as it is not in conflict with the provisions of the 'I B Code'. 7. Further, according to learned counsel for the 'Corporate Debtor(s)', as the I B Code' nowhere specifically bars the applicability of the Companies Act, 2013, Section 433 of the Companies Act, 2013 is applicable to I B Code'. 8. Referring to Sections 424, 425, 433, 434 and 430 of the Companies Act, 2 ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by a creditor before the Official Liquidator attached to the Hon'ble High Court in terms of Companies Act, 1956, though the Official Liquidator is not a Court or a Judicial Tribunal or Quasi-Judicial Tribunal, but an executive appointed and authority recognized under the Companies Act, 1956. Such Official Liquidator' merely invites claims and submits report before the Hon'ble High Court. 16. According to him now under the 'I B Code' the Insolvency Professional takes the position of the 'Official Liquidator', but with greater role to play, than the 'Official Liquidator'. 17. Learned Amicus Curiae also relied on Section 433 of the Companies Act, which provides that the provision of Limitation Act, 1963 shall, as far as may be, apply to proceedings or appeals before the Tribunal or the Appellate Tribunal as the case may be. It was also submitted that the Limitation Act, 1963 is also applicable for 'Corporate Insolvency Resolution Process'. 18. Learned Amicus Curiae placing reliance on sub-section (6) of Section 60 of the 'I B Code' submitted that the said provision makes it clear that the Limitation Act, 1963 is applica ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... plete chapter being devoted to acquisition of land for the planned development. Providing adjudicatory mechanism is one of the most important facets of deciding whether a particular statute is a complete code in itself or not. 21. We have noticed the rival contentions, the relevant provisions of law and decisions, as referred to above. 22. For determination of the issue, it is to be noticed as to whether 'I B Code' is a 'self-contained Code' or not. In 'M/s. Innoventive Industries Ltd. v. ICICI Bank Anr.', the Hon'ble Supreme Court noticed the statement of objects and reasons in passing the 'I B Code' based on various reports, most important of which the report of Bankruptcy Law Reforms Committee of November, 2015, and observed:- 13. One of the important objectives of the Code is to bring the insolvency law in India under a single unified umbrella with the object of speeding up of the insolvency process. As per the data available with the World Bank in 2016, insolvency resolution in India took 4.3 years on an average, which was much higher when compared with the United Kingdom (1 year), USA (1.5 years) and South Africa (2 y ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... on, the realisation is lower when there are delays. Hence, delays cause value destruction. Thus, achieving a high recovery rate is primarily about identifying and combating the sources of delay. XXX XXX XXX XXX The role that insolvency and bankruptcy plays in debt financing Creditors put money into debt investments today in return for the promise of fixed future cash flows. But the returns expected on these investments are still uncertain because at the time of repayment, the seller (debtor) may make repayments as promised, or he may default and does not make the payment. When this happens, the debtor is considered insolvent. Other than cases of outright fraud, the debtor may be insolvent because of Financial failure - a persistent mismatch between payments by the enterprise and receivables into the enterprise, even though the business model is generating revenues, or Business failure - which is a breakdown in the business model of the enterprise, and it is unable to generate sufficient revenues to meet payments. Often, an enterprise may be a successful business model while still failing to repay its creditors. A sound bankruptcy process is one that hel ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... tion between creditors and debtors. 5. The law must ensure that information that is essential for the insolvency and the bankruptcy resolution process is created and available when it is required. 6. The law must ensure that access to this information is made available to all creditors to the enterprise, either directly or through the regulated professional. 7. The law must enable access to this information to third parties who can participate in the resolution process, through the regulated professional. III. The Code will ensure a time-bound process to better preserve economic value. 8. The law must ensure that time value of money is preserved, and that delaying tactics in these negotiations will not extend the time set for negotiations at the start. IV. The Code will ensure a collective process. 9. The law must ensure that all key stakeholders will participate to collectively assess viability. The law must ensure that all creditors who have the capability and the willingness to restructure their liabilities must be part of the negotiation process. The liabilities of all creditors who are not part of the negotiation process must also be met in any negotiat ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nt Central enactment forms a code complete in itself and is exhaustive of the matters dealt with therein...... The Hon'ble Supreme Court further proceeded to hold:- 63. There can be no doubt, therefore, that the Code is a Parliamentary law that is an exhaustive code on the subject matter of insolvency in relation to corporate entities, and is made under Entry 9, List III in the 7th Schedule which reads as under: 9. Bankruptcy and insolvency 27. Thereby it is clear that the 'I B Code' is complete code in itself. 28. Limitation Act, 1963 is the general legislation on the law of limitation. Section 3 prescribes 'bar of limitation', as quoted below:- 3. Bar of limitation.-- (1) Subject to the provisions contained in sections 4 to 24 (inclusive), every suit instituted, appeal preferred, and application made after the prescribed period shall be dismissed, although limitation has not been set up as a defence. (2) For the purposes of this Act-- (2) For the purposes of this Act-- (a) a suit is instituted-- (i) in an ordinary case, when the plaint is presented to the proper officer; (ii) in the case of a pauper, when his application ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... nature of those provisions or the nature of the subject-matter and scheme of the special law exclude their operation. 31. From the decision of Hon'ble Supreme Court in 'Hukumdev Narain Yadav v. Lalit Narain Mishra (1974) 2 SCC 133', it is clear that even if there exists no express exclusion in the special law, the court reserves the right to examine the provisions of the special law, to arrive at a conclusion as to whether the legislative intent was to exclude the operation of the Limitation Act, 1963 or not. 32. To examine the legislative intent to decide whether the 'I B Code' excludes the operation of the Limitation Act, 1963, it is desirable to refer the previous Acts on Insolvency, namely the 'Presidency-Towns Insolvency Act, 1909' and the 'Provincial Insolvency Act, 1920'. 33. In Part VII of the 'Presidency-Towns Insolvency Act, 1909', the period of limitation was prescribed under Sections 101, which reads as follows:- Limitation 101. The period of limitation for an appeal from any act or decision of the official assignee, or from an order made by an officer of the Court empowered under section 6, shall be twent ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... Presidency Towns Insolvency Act 1909, and the Provincial Insolvency Act 1920 immediately before the commencement of this Code shall continue to be governed under the aforementioned Acts and be heard and disposed of by the concerned courts or tribunals, as if the aforementioned Acts have not been repealed; (ii) any order, rule, notification, regulation, appointment, conveyance, mortgage, deed, document or agreement made, fee directed, resolution passed, direction given, proceeding taken, instrument executed or issued, or thing done under or in pursuance of any repealed enactment shall, if in force at the commencement of this Code, continue to be in force, and shall have effect as if the aforementioned Acts have not been repealed; (iii) anything done or any action taken or purported to have been done or taken, including any rule, notification, inspection, order or notice made or issued or any appointment or declaration made or any operation undertaken or any direction given or any proceeding taken or any penalty, punishment, forfeiture or fine imposed under the repealed enactments shall be deemed valid; (iv) any principle or rule of law, or established jurisdiction, form or ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... d of limitation specified for any suit or application by or against a corporate debtor for which an order of moratorium has been made under this Part, the period during which such moratorium is in place shall be excluded. 39. The aforesaid provisions, makes clear the intent of the Legislature which necessarily excluded the provisions of Sections 4 to 24 of the Limitation Act, 1963. 40. A separate time period has been prescribed under different provisions of the 'I B Code' such as:- Fourteen days' time allowed under sub-section (4) of Section 7 and sub-section (4) of Section 10 of the 'I B Code' has been allowed to the Adjudicating Authority to ascertain fact and thereafter to admit or reject the application, if incomplete. 41. Similarly, ten days' expiry period prescribed under sub-section (1) of Section 9 from the date of delivery of the notice or invoice demanding payment under sub-section (1) of Section 8 of the 'I B Code' has been prescribed for filing an application under section 9 of the 'I B Code'. 42. Like, Sections 7 and 8 of the 'I B Code' under sub-section (5) of Section 9, the Adjudicating Author ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... , apply to proceedings or appeals before the Tribunal or the Appellate Tribunal, as the case may be. However, Section 433 of the Companies Act, 2013 has not been amended to make it as a part of the 'I B Code', therefore, we hold that Section 433 which relates to limitation of the Companies Act, 2013, ipso facto will not be applicable to 'I B Code'. 48. There is a provision of limitation under the 'Recovery of Debts Due to Banks and Financial Institutions Act, 1993' (hereinafter referred to as DRT Act ) and 'Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002' (hereinafter referred to as SARFAESI Act ). 49. By Section 249 of the 'I B Code', the 'Recovery of Debts Due to Banks and Financial Institutions Act, 1993' has been amended in the manner specified in the Fifth Schedule. In the said Act, sub-section (1) and sub-section (4) of Section 1 has been amended, as quoted below:- (a) In sub-section (1), for the words Due to Banks and Financial Institutions the words and Bankruptcy shall be substituted; (b) In sub-section (4), for the words The provision of this ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... is to bring the insolvency law in India under a single unified umbrella with the object of speeding up of the insolvency process. While noticing the key economic question in the bankruptcy process, the Hon'ble Supreme Court noticed the report of the Bankruptcy Law Reforms Committee, and observed that there is only one forum for evaluating possibilities, and for taking a decision there is a creditors committee, where all 'Financial Creditors' have votes in proportion to the magnitude of debt that they hold. As mentioned, the Hon'ble Supreme Court also noticed that 'speed is the essence' under 'I B Code'. We find that the Committee never suggested that for admitting the 'Resolution Process' question of limitation, should also be considered. 56. The matter can be looked at from another angle. If law of limitation prescribed under the Limitation Act, 1963 is made applicable, one may take a plea that default of debt is barred by limitation to initiate 'Corporate Insolvency Resolution Process' under Section 7 or Section 9 of the 'I B Code'. However, such stand cannot be taken, where a 'Corporate Applicant' applies for ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... ate right to apply accrues to a 'Financial Creditor' or 'Operational Creditor' or 'Corporate Debtor'. 60. For initiation of 'Corporate Insolvency Resolution Process', the right to apply accrues under Section 7 or Section 9 or Section 10 only with effect from 1st December, 2016 when 'I B Code' has come into force, therefore, the right to apply under Section 7 or Section 9 or Section 10 in all present cases having accrued after 1st December 2016, such applications cannot be rejected on the ground that the application is barred by limitation. 61. Learned Amicus Curiae rightly contended that there should be a time limit for raising claim, including money claim. In this regard, it is desirable to refer the definition of 'Debt' and 'Default' as defined in sub-section (11) and (12) of Section 3 of the 'I B Code', and quoted below:- 3(11) debt means a liability or obligation in respect of a claim which is due from any person and includes a financial debt and operational debt; 3(12) default means non-payment of debt when whole or any part or installment of the amount of debt has become due and payable and ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... by long enjoyment or what may have been lost by a party's own inaction, negligence or latches. 67. The object of fixing time-limit for litigation is based on Public Policy, fixing a life span of legal remedies for the purpose of general welfare. The Hon'ble Supreme Court in N. Balakrishnan v. M.A. Krishnamurthy, (1998) 7 SCC 123, inter alia observed: the rules of limitation are not meant to destroy the rights of the parties but are meant to see that the parties do not resort to dilatory tactics but seek their remedy promptly and the law of limitation fixes a life span for legal injury suffered and that it is enshrined in the maxim interest reipublicae ut sit finis litum i.e. it is for the general welfare that a period to be put to litigation and this is not meant to destroy the rights of the parties, but they are meant to see that the party do not resort to dilatory tactics but seek their remedy promptly because the idea is that every legal remedy must be alive for a legislatively fixed period of time. 68. In view of the settled principle, while we hold that the Limitation Act, 1963 is not applicable for initiation of 'Corporate Insolvency Resolution Proces ..... X X X X Extracts X X X X X X X X Extracts X X X X ..... e Adjudicating Authority by impugned order dated 11th April, 2017 has not decided the question whether Limitation Act, 1963 is applicable in the proceeding for initiation of 'Corporate Insolvency Resolution Process' or not and without deciding the same rejected the case on the ground that the amount legally recoverable is beyond the period of limitation. It has not been noticed that the invoices raised are of the period from 1st April, 2013 to 19th September, 2013, and, therefore, default must have occurred after September, 2013. The 'I B Code' having come into effect on 1st December 2016, the Adjudicating Authority was not correct in dismissing the application on the ground that the application is beyond the period of limitation. 74. For the reasons aforesaid, we set aside the impugned order dated 11th April, 2017 passed by the Adjudicating Authority (National Company Law Tribunal) New Delhi in Company Petition No. (IB)-41(ND)/2017 and remit back the case to the Adjudicating Authority, New Delhi to find out whether the application is otherwise complete or not and, after notice and hearing the parties, will pass appropriate orders in accordance with law. In cas ..... X X X X Extracts X X X X X X X X Extracts X X X X
|
