The Weekly Obiter

LIMITATION ACT APPLICABLE TO APPLICATIONS FILED UNDER SECTIONS 7 AND 9 OF INSOLVENCY AND BANKRUPTCY CODE FROM THE INCEPTION OF THE CODE: SC: OCTOBER 11, 2018:

November 26, 2018

In a significant Judgment the Hon’ble SC in B.K. Educational Services Pvt. Ltd. V. Parag Gupta and Associates, Civil Appeal no. 23988 of 2017 held that the Limitation Act is applicable to applications filed under Sections 7 and 9 of Insolvency and Bankruptcy Code, 2016 (’Code’) from the inception of the Code. The two Judge Bench of Justices RF Nariman and Navin Sinha was examining the question ‘whether the Limitation Act, 1963 will apply to applications that are made under Section 7 and/or Section 9 of the Code on and from its commencement on 01.12.2016 till 06.06.2018’. In all these cases, the Hon’ble NCLAT has held that the Limitation Act, 1963 does not apply. Even on the assumption that Article 137 of the Limitation Act, 1963 is attracted to such applications, in any case, such applications being filed only on or after commencement of the Code on 01.12.2016, since three years have not elapsed since this date, all these applications, in any event, could be said to be within time. Learned counsel appearing on behalf of the appellants had argued, relying upon the Report of the Insolvency Law Committee of March, 2018, that the object of the Amendment Act which introduced Section 238A into the Code was to clarify the law and, thus, Section 238A must be held to be retrospective. Further, according to them, in any case, the law of limitation, pertaining to the domain of procedure, must be held to apply retrospectively in any case. On the other hand, learned advocate appearing on behalf of some of the respondents, argued, based upon our judgment in Innoventive Industries Ltd. v. ICICI Bank & Anr., (2018) 1 SCC 407, that the Code is a complete Code dealing with insolvency and not debt recovery and that, therefore, the period of limitation that are stated therein would show that the Limitation Act would not apply. Allowing the appeals, the bench finally held that since the Limitation Act is applicable to applications filed under Sections 7 and 9 of the Code from the inception of the Code and Article 137 of the Limitation Act gets attracted. “The right to sue”, therefore, accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of the Limitation Act, save and except in those cases where, in the facts of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such application.” 

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