In the recent judgment given (on 17th October, 2017) in the case of Black Pearl Hotels Pvt. Ltd. v. Planet M Retail Ltd, the National Company Law Appellate Tribunal (“NCLAT”) has ruled that “even if” one were to apply the Limitation Act, 1963 to the Insolvency & Bankruptcy Code, 2016 (“Code”), for all claims existing prior to the commencement of the Code, the limitation period for initiating proceedings under the Code begins from December 1, 2016 (i.e. from the date the Code came into force).
Briefly about the relevant provisions of Limitation Act, 1963
The Limitation Act prescribes the time-limit for different suits within, which an aggrieved person can approach the court for redress or justice. The suit, if filed after the expiration of time-limit, is struck by the law of limitation. It is basically meant to indirectly punish persons who go into a long slumber over their rights.
The principle that pervades statutes of limitation at common law is that limitation extinguishes the remedy, but not the right’. This means that the legal right itself is not defeated, but only the right to claim it in a court of law is extinguished.
As per Article 137 of the Limitation Act, the limitation period to file for a civil recovery suit is 3 years starting from the date when the right to apply accrues.
Previous Judgment of NCLAT on the same issue
In the case of Neelkanth Township and Construction Pvt. Ltd. Vs. Urban Infrastructure Trustees Limited in August, 2017, NCLAT held that the Code is not an Act for recovery of money claim, it relates to initiation of Corporate Insolvency Resolution Process. The provision of Limitation Act, 1963 were not applicable to the proceedings initiated under the provisions of the Code. The ruling effectively allowed parties to initiate insolvency proceedings for time barred debts (i.e. debts which could not be recovered due to expiry of limitation period).
[Note: You may refer our research update on the said judgement of the NCLAT, by clicking on the following link:- https://www.bulwarksolicitors.com/bankruptcy-insolvency/limitation-act-does-not-apply-to-insolvency-proceedings-nclat-judgment/]
In the Supreme Court order passed in the Special Leave Petition challenging the Neelkanth Judgment (supra) Supreme Court dismissed the appeal but it did not specifically ruled on the question of law i.e. whether the Limitation Act would apply to proceedings under the Code?
Facts of the Case
The operational creditor claimed that, since October, 2011 the corporate debtor failed to pay certain monthly minimum guarantee fee that was required to be paid under the Business Conducting Agreement; and hence filed an application before NCLT, Mumbai in the year 2017 under Section 9 of the Code for initiation of corporate insolvency resolution process against the corporate debtor.
The NCLT dismissed the application of the operational creditor inter alia on the ground that as the debt pertained to year 2011, the limitation period of 3 years to recover the same expired; and the debt was hence time barred.
An appeal was filed by the operational creditor before the NCLAT against the said order of NCLT.
Whether the insolvency application preferred by operational creditor was barred by limitation, taking into consideration that the debt pertained to year 2011?
Ruling of the NCLAT
The NCLAT held that even if the Limitation Act, 1963 was applied, as per Article 137 of the Schedule to the Limitation Act, a limitation period of 3 (three) years would commence from the period when such right to apply accrues to the applicant.
As the Code came into force on December 1, 2016, the right to apply under the Code accrued only on December 1, 2016 and not before the said date; and an insolvency application filed much prior to the expiry of three years from December 1, 2016 is not barred by limitation.
The order of NCLT was set aside.
Brief Analysis and Comments
While holding that the limitation period (for time barred debts) will commence from December 1, 2016, NCLAT did not give a judgment on the question, – whether the Limitation Act would apply to proceedings under the Code? It is important to note the words in the NCLAT judgment that, – “even if it is accepted that the Limitation Act, 1963 is applicable for initiation of Corporate Insolvency Resolution Process”.
In so far as right to apply for recovery of a debt prior to the commencement of the Code is concerned, the limitation period to initiate insolvency proceedings would commence on December 1, 2016 and expire on November 30, 2019. This gives the creditors a fresh opportunity of 3 years to recover their debts. However, the question whether Limitation Act is applicable to the Code in the first place, is still unsettled.
Considering that the NCLAT in its previous judgment given in the case of Neelkanth Township (supra) has held that the provision of Limitation Act, 1963 were not applicable to the proceedings initiated under the provisions of the Code, it would be interesting to see how both these judgements of the NCLAT are read together; as to whether or not the Limitation Act applies to the insolvency proceedings in the first place. It also remains to be seen whether the Supreme Court concurs with or reverses the judgement of the NCLAT.