Provisions of the limitation Act, 1963, should apply to the proceedings under the Insolvency and Bankruptcy Code, 2016 by virtue of Section 433 of the Companies Act, 2013, since the NClT and the NClAT are the creation of the Companies Act, 2013

Recently, in the case of ‘Neelkanth Township and Construction Pvt  ltd vs Urban Infrastructure Trustees ltd’, the National Company law Appellate Tribunal (NClAT) held that the limitation Act, 1963, is not applicable for proceedings under the Insolvency and Bankruptcy Code (IBC), 2016. The NClAT held, “The next ground taken on behalf of the appellant is that the claim of the respondent is barred by limitation, as the debenture matured between 2011-2103, is not based on law.

There is nothing on record that the limitation Act, 2013, is applicable to the IBC. learned counsel for the appellant also failed to lay hand on any provisions of the IBC to suggest that the law of the limitation Act, 1963, is applicable. The IBC is not an Act for recovery of money claim; it relates to the initiation of corporate insolvency resolution process. If there is a debt, which includes interest, and there is a default of debt and having continuous course of action, the argument, that claim of money by respondent is barred by limitation, cannot be accepted.”

This judgement, passed by the NClAT, has raised an interesting question for extensive debate and discussion. The question is: Is the law of limitation Act, 1963, applicable to the proceedings under the IBC, particularly in view of the Supreme Court order on August 23, in civil Appeal No 10711, titled, ‘Neelkanth Township and Construction Pvt ltd vs Urban Infrastructure ltd’IJ

The apex court said, “Having heard the learned senior counsel appearing for the parties, we do not find any reason to interfere with the order dated August 11, passed by the NClAT. In view of this, we find no merit in the appeal. Accordingly, the appeal is dismissed, keeping the question of law, viz, ‘whether the limitation Act would apply to this proceeding’ open.” This article is an attempt to analyse the judgements passed by the National Company law Tribunal (NClT), the NClAT and the judgements of the apex court to reach to some conclusion in this regard.

The IBC was enacted by Parliament in order to consolidate and amend the laws relating to insolvency and bankruptcy of corporates and individuals. The IBC repealed the Presidency-Towns Insolvency Act, 1909 and the Provincial Insolvency Act, 1920, and amended several enactments, including the Companies Act, 2013. The code aims at reorganisation and insolvency resolution of corporates, partnership firms and individuals in a time-bound manner, for maximisation of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of stakeholders, including alteration, in order of priority of payment of Government dues, and for matters connected therewith or incidental thereto. 

However, like other enactments, the code also gave rise to many issues, which need to be settled by the Supreme Court. One such issue is: Whether the proceedings under the IBC are governed by the provisions of the limitation Act, 1963IJ

Pursuant to the provisions of Section 4 of the IBC, matters relating to insolvency and liquidation of corporate debtors shall be covered under the IBC, where the minimum amount of default of debt occurred by corporate debtor is one lakh rupees. However, the Union Government may, by notification, specify the minimum amount of default of higher value, which shall not be more than one crore rupees. Further, pursuant to the provisions of Section 6 of the IBC, where any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process in respect of such corporate debtor in the manner as provided under the IBC.

Pursuant to the provisions of Section 7, 8, 9 and 10 of the code, an application for initiation of corporate insolvency resolution process can be filed by the financial creditor, operational creditor and corporate debtor, as the case may be before the adjudicating authority in case of default in payment of debt. Pursuant to Section 5(1) of the IBC, adjudicating authority, for the purpose of insolvency resolution and liquidation for corporate persons means the NClT, constituted under section 408 of the Companies Act, 2013.

Provisions of Section 7, 8, 9 and 10 of the IBC, read with Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, provide the process for filing of application for initiation of corporate insolvency resolution process and matter incidental and necessary thereto. However, the IBC is silent on the applicability of the limitation Act, 1963, on the proceeding under IBC before the NClT and various other issues.

Section 60(5)(c) of the IBC confers power upon the NClT to entertain or dispose of any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under the code, notwithstanding anything to the contrary contained in any other law for the time being in force. However, such power is again subject to other provisions of the IBC and the Companies Act, 2013 and the rules made thereunder.

It is evident from the definition of ‘adjudicating authority’, the NClT is the creation of the Companies Act, 2013 as the same is constituted under Chapter XXVII, Section 408 of the Companies Act, 2013. Accordingly, the NClT is bound by the provisions of Chapter XXVII, Section 408 to 434 of the Companies Act, 2013, to the extent the same are not in contradiction of the provisions of the IBC. Even Section 424 of the Companies Act, 2013, as amended by the provisions of XI Schedule, read with Section 255 of the IBC, provides that the NClT and the NClAT shall have, for the purpose of discharging its function under the Companies Act, 2013, or under the provisions of the IBC, the same powers as are vested in a civil court while trying a suit in respect of certain matter. The text of amended Section 424 of the Companies Act, 2013 is as follows:

(i) The Tribunal and the Appellate Tribunal shall not, while disposing of any proceeding before it or, as the case may be, an appeal before it, be bound by the procedure laid down in the Code of Civil Procedure, 1908, but shall be guided by the principles of natural justice, and, subject to the other provisions of this Act or of the IBC and of any rules made thereunder, the Tribunal and the Appellate Tribunal shall have power to regulate their own procedure.

(ii) The Tribunal and the Appellate Tribunal shall have, for the purposes of discharging their functions under this Act or under the IBC the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 while trying a suit in respect of the following matters, namely: Summoning and enforcing the attendance of any person and examining him on oath; requiring the discovery and production of documents; receiving evidence on affidavits; subject to the provisions of Sections 123 and 124 of the Indian Evidence Act, 1872, requisitioning any public record or document or a copy of such record or document from any office; issuing commissions for the examination of witnesses or documents; dismissing a representation for default or deciding it ex parte; setting aside any order of dismissal of any representation for default or any order passed by it ex parte; and any other matter which may be prescribed.

(iii) Any order made by the Tribunal or the Appellate Tribunal may be enforced by that Tribunal in the same manner as if it were a decree made by a court in a suit pending therein, and it shall be lawful for the Tribunal or the Appellate Tribunal to send for execution of its orders to the court within the local limits of whose jurisdiction: In the case of an order against a company, the registered office of the company is situate; or in the case of an order against any other person, the person concerned voluntarily resides or carries on business or personally works for gain.

(iv) All proceedings before the Tribunal or the Appellate Tribunal shall be deemed to be judicial proceedings within the meaning of sections 193 and 228, and for the purposes of section 196 of the Indian Penal Code, and the Tribunal and the Appellate Tribunal shall be deemed to be civil court for the purposes of section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973.”

From the above provisions, it is clear that the NClT and the NClAT, while dealing with any proceeding under the Companies Act, 2013 or the IBC, is bound by the other provisions of the IBC and even of the Companies Act, 2013 and the rules framed thereunder, as accepted by the NClAT in the case of ‘Innoventive Industries ltd vs ICICI Bank and Anr’ held that “As amended Section 424 of the Companies Act, 2013, is applicable to the proceeding under the IBC, it is mandatory for the adjudicating authority to follow the principles of rules of natural justice while passing an order under IBC. Further, as Section 424 mandates the ‘Tribunal’ and ‘Appellate Tribunal’, to dispose of cases or/appeal before it subject to other provisions of the Companies Act, 2013 or IBC such as, Section 420 of the Companies Act, 2013, was applicable and to be followed by the Adjudicating Authority.”

The above order of the NClAT is affirmed by the apex court in Civil Appeal Nos 8337-8338, titled as M/s Innoventive Industries ltd vs ICICI Bank and Anr.

In view of the above facts, though the IBC is silent on the aspects of limitation, Section 433 of the Companies Act, 2013, provides that the provisions of the limitation Act, 1963, shall, as far as may be, apply to the proceedings or appeals before the NClT or the NClAT, as the case may be. The above fact has correctly been noticed by the NClT, the Principal Bench, in the matter of Deem Roll-Tech limited vs Rl Steel & Energy ltd.

While dealing with the question of limitation, it was held by the NClT that in absence of any specific bar in the IBC to the application of limitation Act, 1963, coupled with the provisions of Section 433 of the Act, as contained in the Companies Act, 2013, which makes the limitation Act applicable to the NClT, the debt, as claimed by the petitioner, is barred by limitation and, hence, cannot be the basis for invoking the IBC before the NClT.

In this regard, provisions of Section 60(6) of the IBC may also be noted, where reference is made to the limitation Act for the purpose of exclusion of moratorium period for calculating the limitation period under the limitation Act, 1963, which demonstrate, beyond doubt, that Parliament never intended to exclude the provisions of the IBC or proceedings therein from the applicability of the said Act in certain circumstances and facts of a given case.

Further, in the case of State of MP vs Bhailal Bhai & Ors, the Supreme Court noted that though the provisions of the limitation Act, 1963, do not apply to granting of relief under Article 226, the maximum period fixed by the legislature, as the time within which the relief by a suit in a civil court must be brought in, may be taken to be reasonable standard by which delay in seeking remedy under Article 226 can be measured.

The court may consider the delay unreasonable even if it is less than the period of limitation prescribed for a civil action for the remedy but where the delay is more than this period, it will almost always be proper for the court to hold that it is unreasonable.

In view of the above discussion and analysis, the judgements passed by the Supreme Court, the NClT and the Principal Bench, it will be more appropriate to take a view that provisions of limitation Act, 1963, shall apply to the proceeding under IBC by virtue of Section 433 of the Companies Act, 2013, since the NClT and the NClAT are the creation of the Companies Act, 2013, and, hence, will be governed by the relevant provisions of the Companies Act, 2013, to the extent the same are not in inconsistence (Section 238) with the provisions of the IBC, particularly since the IBC is not silent on the aspects of limitation.

(The writer is Senior Advocate and president, NClT Bar Association, New Delhi)