REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO.23988 OF 2017
B.K. EDUCATIONAL SERVICES
PRIVATE LIMITED …APPELLANT
VERSUS
PARAG GUPTA AND ASSOCIATES …RESPONDENTS
WITH
CIVIL APPEAL NO.439 OF 2018
CIVIL APPEAL NO.436 OF 2018
CIVIL APPEAL NO.3137 OF 2018
CIVIL APPEAL NO.4979 OF 2018
CIVIL APPEAL NO.5819 OF 2018
CIVIL APPEAL NO.7286 OF 2018
JUDGMENT
R.F. NARIMAN, J.
1. The present appeals are concerned with Section 238A of
Signature Not Verified
Digitally signed by R
NATARAJAN
the Insolvency and Bankruptcy Code, 2016 (“Code”), which
Date: 2018.10.11
15:33:55 IST
Reason:
was inserted by the Insolvency and Bankruptcy Code (Second
1
Amendment) Act, 2018 with effect from 06.06.2018. The said
Section is as follows:
“238A. Limitation.—The provisions of the Limitation Act,
1963 (36 of 1963) shall, as far as may be, apply to the
proceedings or appeals before the Adjudicating Authority,
the National Company Law Appellate Tribunal, the Debt
Recovery Tribunal or the Debt Recovery Appellate
Tribunal, as the case may be.”
2. The question raised by the appellants in these appeals is as
to 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 Appellate Authority has held that the
Limitation Act, 1963 does not so 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. Having held this, by
the impugned order dated 07.11.2017 in Civil Appeal No.23988
of 2017, the Appellate Tribunal went on to hold:
2
“68. In view of the settled principle, while we hold
that the Limitation Act, 1963 is not applicable for
initiation of ‘Corporate Insolvency Resolution
Process’, we further hold that the Doctrine of
Limitation and Prescription is necessary to be
looked into for determining the question whether the
application under Section 7 or Section 9 can be
entertained after long delay, amounting to laches
and thereby the person forfeited his claim.
69. If there is a delay of more than three years from
the date of cause of action and no laches on the
part of the Applicant, the Applicant can explain the
delay. Where there is a continuing cause of action,
the question of rejecting any application on the
ground of delay does not arise.
70. Therefore, if it comes to the notice of the
Adjudicating 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.
71. 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 ‘IB Code’.
72. However, the aforesaid principle for triggering an
application under Section 10 of the ‘IB 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
3
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. If any adverse decision is
taken in regard to any creditor disputing the claim on
ground of delay and laches, it will be open to the
aggrieved creditor to file objection before the
Adjudicating Authority against resolution plan and
for its necessary correction who may decide the
same in accordance with the observations as made
above.”
3. By reason of this finding, the order of the Tribunal was set
aside, and the matter was remanded for a hearing on all points
other than the point of limitation.
4. Learned counsel appearing on behalf of the appellants have
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. For this proposition,
they cited several judgments which will be referred to later in
this judgment. They also referred to and relied upon the
4
definitions under Sections 3(11), 3(12), and Section 5(6) of the
Code, which, when contrasted with Section 3(6), would show
that though “claim” in Section 3(6) refers to a right to payment,
the definitions of “debt” and “default” in Sections 3(11) and
3(12) respectively, refer to liability or obligation in respect of a
claim which is “due” and this being the case, a time-barred debt
cannot be said to be “due” so as to trigger the Code. The
learned counsel further attacked the Appellate Tribunal
judgment by stating that an application filed in 2017 under
Section 7 or 9 of the Code, praying that the Code be triggered
for a debt that has become time-barred long back, say in 2011,
would lead to absurdity as it could never have been the
intention of the legislature to resuscitate stale and dead claims
leading to the drastic consequence of the taking away of the
management of the corporate debtor, which may ultimately
result in its corporate death. Also, according to learned counsel
for the appellants, if one were to read the definition of
“Adjudicating Authority” in Section 5(1) of the Code, together
with Sections 408, 424 and 433 of the Companies Act, 2013, it
would become clear that proceedings before the National
5
Company Law Tribunal (“NCLT”) arising under the Code would
be covered by the Limitation Act via Section 433 of the
Companies Act from the very inception or commencement of
the Code. According to them, it is important to remember that
the Eleventh Schedule to the Code, which made amendments
in various Acts, did not introduce the limitation provision of the
Companies Act so as to govern the Code as it was
unnecessary, as Section 433 applied vide Section 5(1) of the
Code read with Section 408 of the Companies Act. In any
event, they argued that even on the assumption that the
Limitation Act does not apply to the applications referred to
above, the principle in State of Madhya Pradesh and Anr. v.
Bhailal Bhai and Ors., (1964) 6 SCR 261 has to be followed,
and the doctrine of laches applies. In applying this doctrine, the
period prescribed by the Limitation Act will be taken to be a
guide, and any application filed relating to debts that are
beyond what is prescribed under the Limitation Act would be hit
by this doctrine in any case.
6
5. On the other hand, Shri Ashish Dholakia, 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 periods of limitation that are stated therein would
show that the Limitation Act would not apply. In any case, as
has been held by various judgments of this Court, the Limitation
Act cannot apply to the NCLT as it is a tribunal and not a court.
He cited a number of judgments to point out the difference
between amounts that are “due and payable” as opposed to
amounts that are “due and recoverable”. According to him,
since the language used in Section 3(11) is “due” and in
Section 3(12), “due and payable”, it would be clear that a time-
barred debt would be subsumed within the said expression as it
is not a debt that is “due and recoverable” under the said
provision. For this purpose, he relied upon a number of
judgments and Sections 25(3), 60 and 61 of the Indian Contract
Act, 1872. He also handed up a chart in which, according to
him, the following Tribunals, depending upon the particular Act
7
in question, would either be governed or not governed by the
Limitation Act as follows:
Tribunal Discharges functions of Whether there is
Name a provision for
application of
Limitation Act?
Telecom Appellate Tribunal under No
Disputes Airports Economic Regulatory
Settlement Authority of India Act, 2008
and Appellate Tribunal under Yes – Section 60
Appellate Information Technology Act,
Tribunal 2000
Appellate Tribunal under No
Telecom Regulatory Authority
of India Act, 1997
National Appellate Tribunal under No
Company Competition Act, 2002
Law Appellate Authority under No**
Appellate Insolvency Bankruptcy Code,
Tribunal 2016
Appellate Tribunal under Yes – Section
Companies Act, 2013 433
National Tribunal under Companies Act, Yes – Section
Company 2013 433
Law Adjudicating Authority under No**
Tribunal Insolvency Bankruptcy Code,
2016
8
Securities Appellate Tribunal under Yes – Section
Appellate Securities Exchange Board 15W
Tribunal of India Act, 1992
Appellate Tribunal under Yes – Section
Depositories Act, 1996 23D
Appellate Tribunal under Yes – Section
Securities Contracts 22D
(Regulation) Act, 1956
Appellate Tribunal under No
Pension Fund Regulatory and
Development Authority Act,
2013
**Prior to the
Insolvency
Bankruptcy
(Second
Amendment) Act,
2018
Also, according to the learned advocate, incongruous results
would obtain if we were to hold that Section 433 of the
Companies Act, would apply to provide a period of limitation to
the NCLT deciding cases under the Code. He argued that the
National Company Law Appellate Tribunal (“NCLAT”) is an
appellate tribunal which is common to three statutes, namely,
the Competition Act, 2002, the Companies Act, 2013, and the
9
Insolvency and Bankruptcy Code, 2016. Under the Competition
Act, no period of limitation is prescribed within which a
complaint may be made to the Competition Commission.
Therefore, when the Appellate Tribunal decides a case under
the Competition Act, it will decide the case on merits despite the
period of limitation having elapsed, whereas, if the argument of
the appellants is correct, the same Appellate Tribunal will
decide a case under the Code applying a period of limitation
and barring applications that fall outside such period. This is an
incongruous situation which could not possibly have been
intended by the legislature. He also went on to argue that
Section 238A of the Code could not be retrospective as it would
take away a vested right of the application filed under Section 7
or Section 9 to be decided without applying the Limitation Act
pre 06.06.2018. He went on to argue that if the doctrine of
laches were to be applied, it would have to be applied along
with other doctrines such as acquiescence and estoppel on the
facts of each case, there being no hard and fast rule that once
a period of limitation was over, the application must be
10
dismissed. He also relied upon several decisions to buttress his
contentions.
6. Having heard the learned counsel for both sides, it is
important to first set out the reason for the introduction of
Section 238A into the Code. This is to be found in the Report of
the Insolvency Law Committee of March, 2018, as follows:
“28. APPLICATION OF LIMITATION ACT, 1963
28.1 The question of applicability of the Limitation
Act, 1963 (“Limitation Act”) to the Code has been
deliberated upon in several judgments of the NCLT
and the NCLAT. The existing jurisprudence on this
subject indicates that if a law is a complete code,
then an express or necessary exclusion of the
Limitation Act should be respected.1 In light of the
confusion in this regard, the Committee deliberated
on the issue and unanimously agreed that the intent
of the Code could not have been to give a new
lease of life to debts which are time-barred. It is
settled law that when a debt is barred by time, the
right to a remedy is time-barred.2 This requires being
read with the definition of ‘debt’ and ‘claim’ in the
Code. Further, debts in winding up proceedings
cannot be time-barred,3 and there appears to be no
rationale to exclude the extension of this principle of
law to the Code.
1
Ravula Subba Rao and Anr. v. The Commissioner of Income Tax, Madras, (1956) SCR 577.
2
Punjab National Bank and Ors. v. Surendra Prasad Sinha AIR 1992 SC 1815.
3
Interactive Media and Communication Solution Private Limited v. Go Airlines, 199 (2013) DLT 267.
11
28.2 Further, non-application of the law on limitation
creates the following problems: first, it re-opens the
right of financial and operational creditors holding
time-barred debts under the Limitation Act to file for
CIRP, the trigger for which is default on a debt
above INR one lakh. The purpose of the law of
limitation is “to prevent disturbance or deprivation of
what may have been acquired in equity and justice
by long enjoyment or what may have been lost by a
party’s own inaction, negligence or latches”4.
Though the Code is not a debt recovery law, the
trigger being ‘default in payment of debt’ renders the
exclusion of the law of limitation counter-intuitive.
Second, it re-opens the right of claimants (pursuant
to issuance of a public notice) to file time-barred
claims with the IRP/RP, which may potentially be a
part of the resolution plan. Such a resolution plan
restructuring time-barred debts and claims may not
be in compliance with the existing laws for the time
being in force as per section 30(4) of the Code.
28.3 Given that the intent was not to package the
Code as a fresh opportunity for creditors and
claimants who did not exercise their remedy under
existing laws within the prescribed limitation period,
the Committee thought it fit to insert a specific
section applying the Limitation Act to the Code. The
relevant entry under the Limitation Act may be on a
case to case basis. It was further noted that the
Limitation Act may not apply to applications of
corporate applicants, as these are initiated by the
applicant for its own debts for the purpose of CIRP
and are not in the form of a creditor’s remedy.”
4
Rajinder Singh v. Santa Singh, AIR 1973 SC 2537.
12
The Report of the Committee would indicate that it has applied
its mind to judgments of the NCLT and the NCLAT. It has also
applied its mind to the aspect that the law is a complete Code
and the fact that the intention of such a Code could not have
been to give a new lease of life to debts which are time-barred.
7. We will first take up the position in law of the applicability of
the Limitation Act, on a reading of the Code together with a
cognate legislation, the Companies Act, 2013. Sections 3(6),
3(11), 3(12), and 5(6) of the Code read as follows:
“3. Definitions.—In this Part, unless the context
otherwise requires,—
(6) “claim” means—
(a) a right to payment, whether or not such
right is reduced to judgment, fixed,
disputed, undisputed, legal, equitable,
secured or unsecured;
(b) right to remedy for breach of contract
under any law for the time being in force, if
such breach gives rise to a right to
payment, whether or not such right is
reduced to judgment, fixed, matured,
unmatured, disputed, undisputed, secured
or unsecured;”
xxx xxx xxx
13
“(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;
(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 is not paid
by the debtor or the corporate debtor, as the case
may be;”
“5. Definitions.—In this Part, unless the context
otherwise requires,—
xxx xxx xxx
(6) “dispute” includes a suit or arbitration
proceedings relating to—
(a) the existence of the amount of debt;
(b) the quality of goods or service; or
(c) the breach of a representation or warranty;”
Vide Section 3(37), words and expressions used, but not
defined in the Code, but defined inter alia in the Companies Act,
2013 shall have the meanings respectively assigned to them in
that Act. Section 5(1) of the Code defines Adjudicating Authority
as follows:
“5. Definitions.—In this Part, unless the context
otherwise requires,—
(1) “Adjudicating Authority”, for the purposes of this
Part, means National Company Law Tribunal
constituted under section 408 of the Companies Act,
2013 (18 of 2013);”14
This Section, therefore, requires that we look at Section 408 ofthe Companies Act. Section 408 of the Companies Act states:
“408. Constitution of National Company Law
Tribunal.—The Central Government shall, by
notification, constitute, with effect from such date as
may be specified therein, a Tribunal to be known as
the National Company Law Tribunal consisting of a
President and such number of Judicial and
Technical members, as the Central Government
may deem necessary, to be appointed by it by
notification, to exercise and discharge such powers
and functions as are, or may be, conferred on it by
or under this Act or any other law for the time being
in force.”It is important to notice that the NCLT is set up to discharge
such powers and functions that are conferred on it not merely
under the Companies Act but also under “any other law for the
time being in force”. Section 433 of the Companies Act states
as follows:
“433. Limitation.—The provisions of the Limitation
Act, 1963 (36 of 1963) shall, as far as may be, apply
to proceedings or appeals before the Tribunal or the
Appellate Tribunal, as the case may be.”15
What is conspicuous by its absence in this Section are theexpressions “under this Act” or “subject to the provisions of this
Act”. By way of contrast, Section 424(2) uses the expression
“under this Act” as follows:
“424. Procedure before Tribunal and Appellate
Tribunal.—
xxx xxx xxx
(2) The Tribunal and the Appellate Tribunal shall
have, for the purposes of discharging their functions
under this Act or under the Insolvency and
Bankruptcy Code, 2016, the same powers as are
vested in a civil court under the Code of Civil
Procedure, 1908 (5 of 1908) while trying a suit in
respect of the following matters, namely:-
(a) summoning and enforcing the attendance
of any person and examining him on oath;
(b) requiring the discovery and production of
documents;
(c) receiving evidence on affidavits;
(d) subject to the provisions of sections 123
and 124 of the Indian Evidence Act, 1872 (1 of
1872), requisitioning any public record or
document or a copy of such record or
document from any office;
(e) issuing commissions for the examination of
witnesses or documents;
(f) dismissing a representation for default or
deciding it ex parte;
(g) setting aside any order of dismissal of any
representation for default or any order passed
by it ex parte; and
(h) any other matter which may be prescribed.”
16
(emphasis supplied)Pertinently, the Eleventh Schedule (Amendments to the
Companies Act, 2013) to the Code reads as follows:
“1. In Section 2,—
xxx xxx xxx
(b) after clause (94), the following clause shall be
inserted, namely—
‘(94-A) “winding up” means winding up
under this Act or liquidation under the
Insolvency and Bankruptcy Code, 2016, as
applicable.’”
8. It may also be noticed that under Section 434(1)(c) of the
Companies Act, all proceedings under the Companies Act,
including the proceedings relating to winding up of companies,
pending immediately before such date, before any District Court
or High Court, shall stand transferred to the Tribunal and the
Tribunal may proceed to deal with such proceedings from the
stage before they are transferred. This Section is also important
in that it indicates that proceedings under the Companies Act
relating to arbitration, compromise, arrangements and
reconstruction and winding up of companies, that were pending
17
before the District Court or the High Court, may now betransferred to the Tribunal. Each of these proceedings would
directly be governed by the Limitation Act as they are
proceedings before Courts. Obviously, upon transfer of such
proceedings to the Tribunal, it cannot be stated that because
these proceedings are now before the Tribunal, the Limitation
Act will cease to apply. Also, in fresh applications that are made
after the Code comes into force, it cannot be said that to such
applications, the Limitation Act will not apply, but to applications
that are transferred from the District Court or the High Court,
the provisions of the Limitation Act will apply. In particular,
winding up proceedings pending before a High Court are liable
to be transferred to the NCLT for further decision by applying
the Code and not the Companies Act. This becomes clear on a
reading of Rule 5 of the Companies (Transfer of Pending
Proceedings) Rules, 2016, which reads as follows:
“5. Transfer of pending proceedings of Winding
up on the ground of inability to pay debts.—(1)
All petitions relating to winding up of a company
under clause (e) of section 433 of the Act 5 on the5
Rule 2(2) of the Companies (Transfer of Pending Proceedings) Rules, 2016 defines the “Act” as
meaning the Companies Act, 1956.
18
ground of inability to pay its debts pending before a
High Court, and, where the petition has not been
served on the respondent under rule 26 of the
Companies (Court) Rules, 1959 shall be transferred
to the Bench of the Tribunal established under sub-
section (4) of Section 419 of the Companies Act,
2013 exercising territorial jurisdiction to be dealt with
in accordance with Part ll of the Code:
Provided that the petitioner shall submit all
information, other than information forming part of
the records transferred in accordance with rule 7,
required for admission of the petition under sections
7, 8 or 9 of the Code, as the case may be, including
details of the proposed insolvency professional to
the Tribunal upto 15th day of July, 2017, failing which
the petition shall stand abated:
Provided further that any party or parties to the
petitions shall, after the 15th day of July, 2017, be
eligible to file fresh applications under sections 7 or
8 or 9 of the Code, as the case may be, in
accordance with the provisions of the Code:
Provided also that where a petition relating to
winding up of a company is not transferred to the
Tribunal under this rule and remains in the High
Court and where there is another petition under
clause (e) of section 433 of the Act for winding up
against the same company pending as on 15 th
December, 2016, such other petition shall not be
transferred to the Tribunal, even if the petition has
not been served on the respondent.”
9. It is thus clear that Section 433 of the Companies Act, 2013
would apply to the Tribunal even when it decides applications
under Sections 7 and 9 of the Code.
19
10. The matter can be viewed from a slightly different angle. In
National Sewing Thread Co. Ltd. v. James Chadwick and
Bros. Ltd., 1953 SCR 1028, this Court dealt with an appeal to
the High Court from any decision of the Registrar under Section
76 of the Trade Marks Act. It was argued that the provisions of
clause 15 of the Letters Patent would not be attracted to such
an appeal preferred under Section 76. This was negatived by
this Court stating:
“……The Trade Marks Act does not provide or lay
down any procedure for the future conduct or career
of that appeal in the High Court, indeed Section 77
of the Act provides that the High Court can if it likes
make rules in the matter. Obviously after the appeal
had reached the High Court it has to be determined
according to the rules of practice and procedure of
that Court and in accordance with the provisions of
the charter under which that Court is constituted and
which confers on it power in respect to the method
and manner of exercising that jurisdiction. The rule
is well settled that when a statute directs that an
appeal shall lie to a Court already established, then
that appeal must be regulated by the practice and
procedure of that Court. ……
Though the facts of the cases laying down the
above rule were not exactly similar to the facts of the
present case, the principle enunciated therein is one
of general application and has an apposite
application to the facts and circumstances of the
present case. Section 76 of the Trade Marks Act
confers a right of appeal to the High Court and says20
nothing more about it. That being so, the High Court
being seized as such of the appellate jurisdiction
conferred by Section 76 it has to exercise that
jurisdiction in the same manner as it exercises its
other appellate jurisdiction and when such
jurisdiction is exercised by a Single Judge, his
judgment becomes subject to appeal under clause
15 of the Letters Patent there being nothing to the
contrary in the Trade Marks Act.”
(at 1033-1034)
11. Given the fact that the “procedure” that would apply to the
NCLT would be the procedure contained inter alia in the
Limitation Act, it is clear that the NCLT would have to decide
applications made to it under the Code in the same manner as
it exercises its other jurisdiction under the Companies Act. This
being the position in law, it is clear that when various provisions
of the Companies Act were amended by the Eleventh Schedule
to the Code, it was unnecessary to apply and adapt Section
433 of the Companies Act to the Code, as was done to various
other Sections of the Companies Act.
12. Coming to the next argument that, in any case, Section
238A, being clarificatory of the law and being procedural in
nature, must be held to be retrospective, it is necessary to refer
21
to a few judgments of this Court. In M.P. Steel Corporation v.
CCE, (2015) 7 SCC 58, this Court held:
“54. It is settled law that periods of limitation are
procedural in nature and would ordinarily be applied
retrospectively. This, however, is subject to a rider.
In New India Insurance Co. Ltd. v. Shanti Misra
[(1975) 2 SCC 840 : (1976) 2 SCR 266], this Court
held: (SCC p. 844, para 5)
5. “On the plain language of Sections 110-
A and 110-F there should be no difficulty in
taking the view that the change in law was
merely a change of forum i.e. a change of
adjectival or procedural law and not of
substantive law. It is a well-established
proposition that such a change of law
operates retrospectively and the person
has to go to the new forum even if his
cause of action or right of action accrued
prior to the change of forum. He will have a
vested right of action but not a vested right
of forum. If by express words the new
forum is made available only to causes of
action arising after the creation of the
forum, then the retrospective operation of
the law is taken away. Otherwise the
general rule is to make it retrospective.”
55. In answering a question which arose under
Section 110-A of the Motor Vehicles Act, this Court
held: (Shanti Misra case [(1975) 2 SCC 840 : (1976)
2 SCR 266] , SCC p. 846, para 7)
7. “… ‘(1) Time for the purpose of filing the
application under Section 110-A did not
start running before the constitution of the
tribunal. Time had started running for the
filing of the suit but before it had expired
22
the forum was changed. And for the
purpose of the changed forum, time could
not be deemed to have started running
before a remedy of going to the new forum
is made available.
(2) Even though by and large the law of
limitation has been held to be a procedural
law, there are exceptions to this principle.
Generally the law of limitation which is in
vogue on the date of the commencement
of the action governs it. But there are
certain exceptions to this principle. The
new law of limitation providing a longer
period cannot revive a dead remedy. Nor
can it suddenly extinguish a vested right of
action by providing for a shorter period of
limitation.’”
(emphasis in original)
56. This statement of the law was referred to with
approval in Vinod Gurudas Raikar v. National
Insurance Co. Ltd. [(1991) 4 SCC 333] as follows:
(SCC p. 337, para 7)
7. “It is true that the appellant earlier could
file an application even more than six
months after the expiry of the period of
limitation, but can this be treated to be a
right which the appellant had acquired. The
answer is in the negative. The claim to
compensation which the appellant was
entitled to, by reason of the accident was
certainly enforceable as a right. So far the
period of limitation for commencing a legal
proceeding is concerned, it is adjectival in
nature, and has to be governed by the new
Act—subject to two conditions. If under the
repealing Act the remedy suddenly stands
barred as a result of a shorter period of
limitation, the same cannot be held to
23
govern the case, otherwise the result will
be to deprive the suitor of an accrued right.
The second exception is where the new
enactment leaves the claimant with such a
short period for commencing the legal
proceeding so as to make it unpractical for
him to avail of the remedy. This principle
has been followed by this Court in many
cases and by way of illustration we would
like to mention New India Insurance Co.
Ltd. v. Shanti Misra [(1975) 2 SCC 840 :
(1976) 2 SCR 266]. The husband of the
respondent in that case died in an accident
in 1966. A period of two years was
available to the respondent for instituting a
suit for recovery of damages. In March
1967 the Claims Tribunal under Section
110 of the Motor Vehicles Act, 1939 was
constituted, barring the jurisdiction of the
civil court and prescribed 60 days as the
period of limitation. The respondent filed
the application in July 1967. It was held
that not having filed a suit before March
1967 the only remedy of the respondent
was by way of an application before the
Tribunal. So far the period of limitation was
concerned, it was observed that a new law
of limitation providing for a shorter period
cannot certainly extinguish a vested right of
action. In view of the change of the law it
was held that the application could be filed
within a reasonable time after the
constitution of the Tribunal; and, that the
time of about four months taken by the
respondent in approaching the Tribunal
after its constitution, could be held to be
either reasonable time or the delay of
about two months could be condoned
under the proviso to Section 110-A(3).”
24
Both these judgments were referred to and followed
in Union of India v. Harnam Singh [(1993) 2 SCC
162 : 1993 SCC (LS) 375 : (1993) 24 ATC
92], see para 12.
57. The aforesaid principle is also contained in
Section 30(a) of the Limitation Act, 1963:
30. “Provision for suits, etc., for which
the prescribed period is shorter than
the period prescribed by the Indian
Limitation Act, 1908.—Notwithstanding
anything contained in this Act—
(a) any suit for which the period of
limitation is shorter than the
period of limitation prescribed by
the Indian Limitation Act, 1908,
may be instituted within a period
of seven years next after the
commencement of this Act or
within the period prescribed for
such suit by the Indian Limitation
Act, 1908, whichever period
expires earlier.”
58. The reason for the said principle is not far to
seek. Though periods of limitation, being procedural
law, are to be applied retrospectively, yet if a shorter
period of limitation is provided by a later amendment
to a statute, such period would render the vested
right of action contained in the statute nugatory as
such right of action would now become time-barred
under the amended provision.
59. This aspect of the matter is brought out rather
well in Thirumalai Chemicals Ltd. v. Union of India
[(2011) 6 SCC 739 : (2011) 3 SCC (Civ) 458] as
follows: (SCC pp. 748-49, paras 22-26)
22. “Law is well settled that the manner in
which the appeal has to be filed, its form
and the period within which the same has
25
to be filed are matters of procedure, while
the right conferred on a party to file an
appeal is a substantive right. The question
is, while dealing with a belated appeal
under Section 19(2) of FEMA, the
application for condonation of delay has to
be dealt with under the first proviso to sub-
section (2) of Section 52 of FERA or under
the proviso to sub-section (2) of Section 19
of FEMA. For answering that question it is
necessary to examine the law on the point.
Substantive and procedural law
23. Substantive law refers to a body of
rules that creates, defines and regulates
rights and liabilities. Right conferred on a
party to prefer an appeal against an order
is a substantive right conferred by a statute
which remains unaffected by subsequent
changes in law, unless modified expressly
or by necessary implication. Procedural law
establishes a mechanism for determining
those rights and liabilities and a machinery
for enforcing them. Right of appeal being a
substantive right always acts prospectively.
It is trite law that every statute is
prospective unless it is expressly or by
necessary implication made to have
retrospective operation.
24. Right of appeal may be a substantive
right but the procedure for filing the appeal
including the period of limitation cannot be
called a substantive right, and an
aggrieved person cannot claim any vested
right claiming that he should be governed
by the old provision pertaining to period of
limitation. Procedural law is retrospective
meaning thereby that it will apply even to
26
acts or transactions under the repealed
Act.
25. Law on the subject has also been
elaborately dealt with by this Court in
various decisions and reference may be
made to a few of those decisions. This
Court in Garikapati Veeraya v. N. Subbiah
Choudhry [AIR 1957 SC 540], New India
Insurance Co. Ltd. v. Shanti Misra [(1975)
2 SCC 840 : (1976) 2 SCR 266], Hitendra
Vishnu Thakur v. State of Maharashtra
[(1994) 4 SCC 602 : 1994 SCC (Cri) 1087],
Chintamani Saran Nath Shahdeo v. State
of Bihar [(1999) 8 SCC 16] and Shyam
Sunder v. Ram Kumar [(2001) 8 SCC 24],
has elaborately discussed the scope and
ambit of an amending legislation and its
retrospectivity and held that every litigant
has a vested right in substantive law but no
such right exists in procedural law. This
Court has held that the law relating to
forum and limitation is procedural in nature
whereas law relating to right of appeal
even though remedial is substantive in
nature.
26. Therefore, unless the language used
plainly manifests in express terms or by
necessary implication a contrary intention a
statute divesting vested rights is to be
construed as prospective, a statute merely
procedural is to be construed as
retrospective and a statute which while
procedural in its character, affects vested
rights adversely is to be construed as
prospective.”
60. This judgment was strongly relied upon by Shri
A.K. Sanghi for the proposition that the law in force
on the date of the institution of an appeal,
27
irrespective of the date of accrual of the cause of
action for filing an appeal, will govern the period of
limitation. Ordinarily, this may well be the case. As
has been noticed above, periods of limitation being
procedural in nature would apply retrospectively. On
the facts in the judgment in Thirumalai case [(2011)
6 SCC 739 : (2011) 3 SCC (Civ) 458], it was held
that the repealed provision contained in the Foreign
Exchange Regulation Act, namely, Section 52 would
not apply to an appeal filed long after 1-6-2000
when the Foreign Exchange Management Act came
into force, repealing the Foreign Exchange
Regulation Act. It is significant to note that Section
52(2) of the repealed Act provided a period of
limitation of 45 plus 45 days and no more whereas
Section 19(2) of FEMA provided for 45 days with no
cap thereafter provided sufficient cause to condone
delay is shown. On facts, in that case, the appeal
was held to be properly instituted under Section 19,
which as has been stated earlier, had no cap to
condonation of delay. It was, therefore, held that the
Appellate Tribunal in that case could entertain the
appeal even after the period of 90 days had expired
provided sufficient cause for the delay was made
out.”
A perusal of this judgment would show that limitation, being
procedural in nature, would ordinarily be applied retrospectively,
save and except that the new law of limitation cannot revive a
dead remedy. This was said in the context of a new law of
limitation providing for a longer period of limitation than what
was provided earlier. In the present case, these observations
28
are apposite in view of what has been held by the Appellate
Tribunal. An application that is filed in 2016 or 2017, after the
Code has come into force, cannot suddenly revive a debt which
is no longer due as it is time-barred.
13. In State of Kerala v. V.R. Kalliyanikutty, (1999) 3 SCC
657, (“V.R. Kalliyanikutty”), this Court dealt with whether a
time-barred debt can be recovered by resorting to recovery
proceedings under the Kerala Revenue Recovery Act of 1968.
In stating that the said Act cannot extend to recovery of a time-
barred debt, this Court stated in paragraph 8,
“8. …… In every case the exact meaning of the
word “due” will depend upon the context in which
that word appears.”
It was held in that case that Section 17(3) of the Kerala
Revenue Recovery Act, 1968 made it clear that a person
making payment under protest will have a right to institute a suit
for refund of the whole or part of the sum paid by him under
protest. It was thus held that when the right to file such a suit is
expressly preserved, there is a necessary implication that the
shield of limitation available to a debtor in a suit is also
29
preserved, as a result of which, a wide interpretation of the
expression “amount due” to include time-barred debts would
destroy an important defence available to a debtor in a suit
against him by the creditor, and may fall foul of Article 14 of the
Constitution of India.
14. Another judgment referred to by learned counsel for the
appellants is contained in Union of India v. Uttam Steels Ltd.,
(2015) 13 SCC 209. Here the question was whether Section
11-B of the Central Excise Act as amended on 12.05.2000
would apply to the fact situation in that case. Section 11-B
provided a longer period of limitation by substituting “six
months” with “one year”. Since the rebate application was filed
within a period of one year, the respondent contended that they
were within time. This Court held, in paragraph 10, that
limitation, being procedural law, would ordinarily be
retrospective in nature. This is however with one proviso
superadded, which is that the claim made under the amended
provision should not itself have been a dead claim in the sense
that it was time-barred before the amending Act came into
30
force, bringing a larger period of limitation with it. On the facts
of that case, it was held that since the claim for rebate was
made beyond the period of six months but within the extended
period of one year, such extended period would not avail the
respondent in that case.
15. In Allied Motors (P) Ltd. v. CIT, (1997) 3 SCC 472, this
Court took the view that the amendment made to Section 43-B
in the Income Tax Act was retrospective, holding:
“14. …… As observed by G.P. Singh in his
Principles of Statutory Interpretation, 4th Edn. at p.
291: “It is well settled that if a statute is curative or
merely declaratory of the previous law retrospective
operation is generally intended.” In fact the
amendment would not serve its object in such a
situation unless it is construed as retrospective……”
In the present case also, it is clear that the amendment of
Section 238A would not serve its object unless it is construed
as being retrospective, as otherwise, applications seeking to
resurrect time-barred claims would have to be allowed, not
being governed by the law of limitation.
31
16. We may also refer to a recent decision of this Court in SBI
v. V. Ramakrishnan, (2018) SCC Online SC 963, where this
Court, after referring to the selfsame Insolvency Law Committee
Report, held that the amendment made to Section 14 of the
Code, in which the moratorium prescribed by Section 14 was
held not to apply to guarantors, was held to be clarificatory, and
therefore, retrospective in nature, the object being that an
overbroad interpretation of Section 14 ought to be set at rest by
clarifying that this was never the intention of Section 14 from
the very inception.
17. We now come to some of the judgments cited by Shri
Dholakia. In State of Jharkhand v. Shivam Coke Industries,
(2011) 8 SCC 656, this Court, in construing Section 46(4) of the
Bihar Finance Act, 1981, held that the Limitation Act could not
be read into the exercise of a suo motu power of revision. This
was for the reason that the Limitation Act applies to courts and
not to quasi-judicial bodies. In so holding, the Court went on to
hold:
“46. We would, however, agree with the position that
such a power cannot be exercised by the revisional
32
authority indefinitely. In our considered opinion, such
extraordinary power i.e. suo motu power of initiation
of revisional proceeding has to be exercised within a
reasonable period of time and what is a reasonable
period of time would depend on the facts and
circumstances of each case. For this proposition, a
number of decisions of this Court can be referred to
on which reliance was placed even by the counsel
appearing for the respondent.”
This judgment has no direct bearing on the controversy before
us except that even where the Limitation Act was held not to
apply, the power of the revisional authority cannot be exercised
at any point of time but had to be exercised within a reasonable
period, otherwise, it would be barred by a doctrine akin to
limitation, namely, delay.
18. Learned counsel for the respondents then referred to and
relied upon Bombay Dyeing Mfg. Co. Ltd. v. State of
Bombay, 1958 SCR 1122 (“Bombay Dyeing”). In this case,
the Court was concerned with the Bombay Labour Welfare
Fund Act in which the well-known distinction between the loss
of a right and the loss of a remedy was reiterated thus:
“It will be observed that the definition of “unpaid
accumulations” takes in only payments due to the
employees remaining unpaid within a period of three
33
years after they become due. The intention of the
Legislature obviously was that claims of the
employees which are within time should be left to be
enforced by them in the ordinary course of law, and
that it is only when they become time-barred and
useless to them that the State should step in and
take them over. On this, the question arises for
consideration whether a debt which is time-barred
can be the subject of transfer, and if it can be, how it
can benefit the Board to take it over if it cannot be
realised by process of law. Now, it is the settled law
of this country that the statute of Limitation only bars
the remedy but does not extinguish the debt.
Section 28 of the Limitation Act provides that when
the period limited to a person for instituting a suit for
possession of any property has expired, his right to
such property is extinguished. And the authorities
have held — and rightly, that when the property is
incapable of possession, as for example, a debt, the
section has no application, and lapse of time does
not extinguish the right of a person thereto. Under
Section 25(3) of the Contract Act, a barred debt is
good consideration for a fresh promise to pay the
amount. When a debtor makes a payment without
any direction as to how it is to be appropriated, the
creditor has the right to appropriate it towards a
barred debt. (Vide Section 60 of the Contract Act). It
has also been held that a creditor is entitled to
recover the debt from the surety, even though a suit
on it is barred against the principal debtor. Vide
Mahant Singh v. U Ba Yi [(1939) LR 66 IA
198], Subramania Aiyar v. Gopala Aiyar [(1910) ILR
33 Mad 308] and Dil Muhammad v. Sain Das [AIR
1927 Lah 396]. And when a creditor has a lien over
goods by way of security for a loan, he can enforce
the lien for obtaining satisfaction of the debt, even
though an action thereon would be time-barred. Vide
34
Narendra Lal Khan v. Tarubala Dasi [(1921) ILR 48
Cal 817, 823]. ……”6
(at 1134-1135)
Section 25(3) of the Contract Act was referred to by this
judgment. This Section is based on the fact that under the
Indian Contract Act, 1872, “consideration” is defined in Section
2(d) as including past consideration, a notion that was unknown
to English law. This doctrine came from Field’s Draft Civil Code,
1862,7 which was one of the sources for the enactment of the
Indian Contract Act, 1872. Section 572 of Field’s Draft Civil
Code reads as follows:
Ҥ 572. An existing legal or moral obligation resting
upon the promiser, is also a good consideration for a
promise, to an extent corresponding with the extent
of the obligation, but no further or otherwise.” 86
Similarly, in Punjab National Bank v. S. Sinha, 1993 Supp (1) SCC 499, this Court reiterated the well-
known difference between the right to recover a debt remaining even though the remedy to do so may be
barred by the law of limitation (see paragraph 5).
7
DRAFT OF A CIVIL CODE FOR THE STATE OF NEW YORK, PREPARED BY THE COMMISSIONERS OF THE CODE,
AND SUBMITTED TO THE JUDGES AND OTHERS FOR EXAMINATION, PRIOR TO REVISION BY THE COMMISSIONERS
(Weed, Parsons and Company Printers 1862) [“Field’s Draft Civil Code”].
8
David Dudley Field Jr., the draftsman of the Draft Civil Code for the State of New York, was one of three
celebrated brothers. Stephen Field, one of the brothers, was the second-longest serving Justice of the
U.S. Supreme Court, having served for over 34 years. He was the only Justice to have been appointed as
the tenth sitting Justice of the U.S. Supreme Court by President Lincoln. Another brother, Cyrus Field,
was famous for connecting two continents by laying the Atlantic Cable, after several failed attempts, in
1866, and was immortalized in Stefan Zweig’s ‘The Tide of Fortune’.
35
19. Shri Dholakia also referred to and relied upon Section 60
and 61 of the Contract Act which are set out hereunder:
“60. Application of payment where debt to be
discharged is not indicated.—Where the debtor
has omitted to intimate, and there are no other
circumstances indicating to which debt the payment
is to be applied, the creditor may apply it at his
discretion to any lawful debt actually due and
payable to him from the debtor, whether its recovery
is or is not barred by the law in force for the time
being as to the limitation of suits.
61. Application of payment where neither party
appropriates.—Where neither party makes any
appropriation the payment shall be applied in
discharge of the debts in order of time, whether they
are or are not barred by the law in force for the time
being as to the limitation of suits. If the debts are of
equal standing, the payment shall be applied in
discharge of each proportionably.”
These Sections also recognize the fact that limitation bars the
remedy but not the right. In the context in which Section 60
appears, it is interesting to note that Section 60 uses the phrase
“actually due and payable to him….” whether its recovery is or
is not barred by the limitation law. The expression “actually”
makes it clear that in fact a debt must be due and payable
notwithstanding the law of limitation. From this, it is very difficult
to infer that in the context of the Contract Act, the expression
36
“due and payable” by itself would connote an amount that may
be due even though it is time-barred, for otherwise, it would be
unnecessary for Section 60 to contain the word “actually”
together with the later words, “whether its recovery is or is not
barred by the law in force for the time being as to the limitation
of suits”.
20. Shri Dholakia went on to cite Bhimsen Gupta v.
Bishwanath Prasad Gupta, (2004) 4 SCC 95, and In re Sir
Harilal Nemchand Gosalia, AIR 1950 Bom 74 for the
proposition that debts “due and payable” must be differentiated
from debts “due and recoverable”.
In the former case, Section 11(1)(d) of the Bihar Buildings
(Lease, Rent and Eviction) Control Act, 1982 provided for
eviction of a tenant where the amount of two months’ rent
“lawfully payable by the tenant and due from him” was in
arrears. This Court followed Bombay Dyeing (supra), stating
as follows:
“6. Section 11 of the said Act, 1982 deals with
eviction of tenants. It begins with non obstante
clause. It states that notwithstanding anything
37
contained in any contract or law to the contrary, no
tenant shall be liable to be evicted except in
execution of a decree passed by the court on one or
more of the grounds mentioned in Sections 11(1)(a)
to (f). In this case we are concerned with the ground
of default which falls under Section 11(1)(d) and
which states that where the amount of two months’
rent, lawfully payable by the tenant and due from
him is in arrears by reason of non-payment within
the time fixed by the contract or in the absence of
such contract by the last day of the month next
following that for which rent is payable then such
default would constitute ground for eviction. It is
interesting to note that the expression used in
Section 11(1)(d) is “lawfully payable” and not
“lawfully recoverable” and therefore, Section 11(1)
(d) has nothing to do with recovery of arrears of rent.
On the contrary, Section 11(1)(d) provides a ground
for eviction of the tenant in the eviction suit. It is well
settled that law of limitation bars the remedy of the
claimant to recover the rent for the period beyond
three years prior to the institution of the suit, but that
cannot be a ground for defeating the claim of the
landlord for decree of eviction on satisfaction of the
ingredients of Section 11(1)(d) of the said Act, 1982.
In the case of Bombay Dyeing Mfg. Co. Ltd. v.
State of Bombay [AIR 1958 SC 328] it has been
held that when the debt becomes time-barred the
amount is not recoverable lawfully through the
process of the court, but it will not mean that the
amount has become not lawfully payable. Law does
not bar a debtor to pay nor a creditor to accept a
barred debt.”
It is clear that this judgment will have no application to the
present case as Section 11(1)(d) had nothing to do with
38
recovery of arrears of rent, but furnished a ground for evicting
the tenant, this being the context in which the words “lawfully
payable by the tenant and due from him” had been used. This
Court correctly held that the right to evict the tenant cannot be
affected as the law of limitation has reference only to the
remedy of recovery of arrears of rent, and such law cannot be
held to stand in the way of the right to evict the tenant.
Similarly, in Sir Harilal Nemchand Gosalia (supra), the
expression used is “amount of debts due and owing from the
deceased, payable by law out of the estate” which appeared in
the third schedule of the Court Fee Act, 1870. It was held that
an executor of a will is entitled to pay time-barred debts and
cannot be confused with a creditor who may sue the executor in
relation to those debts. The creditor would fail in his action
because although the debt subsists, the remedy has been
extinguished due to the law of limitation. Since the executor is
duty bound to pay the amounts due and owing under the will
without going to Court, he is entitled to pay a time-barred debt.
This, the Court held, is made clear by Section 323 of the
39
Succession Act, 1925, which made no exception in case of
time-barred debts. It is in this context that the Court noted the
difference between “payable” and “recoverable”.
21. It is important to remember that interpretation is the art of
matching the text with the context. In a slightly different context,
under Section 86 of the Electricity Act, this Court, in Andhra
Pradesh Power Coordination Committee and Ors. v. Lanco
Kondapalli Power Ltd. and Ors., (2016) 3 SCC 468, refused
to apply the principle of these cases stating:
“30. …… In the absence of any provision in the
Electricity Act creating a new right upon a claimant
to claim even monies barred by law of limitation, or
taking away a right of the other side to take a lawful
defence of limitation, we are persuaded to hold that
in the light of nature of judicial power conferred on
the Commission, claims coming for adjudication
before it cannot be entertained or allowed if it is
found legally not recoverable in a regular suit or any
other regular proceeding such as arbitration, on
account of law of limitation. We have taken this view
not only because it appears to be more just but also
because unlike labour laws and the Industrial
Disputes Act, the Electricity Act has no peculiar
philosophy or inherent underlying reasons requiring
adherence to a contrary view.
31. We have taken the aforesaid view to avoid
injustice as well as the possibility of discrimination.
We have already extracted a part of para 11 of the
40
judgment in State of Kerala v. V.R. Kalliyanikutty
[State of Kerala v. V.R. Kalliyanikutty, (1999) 3 SCC
657] wherein the Court considered the matter also in
the light of Article 14 of the Constitution. In that case
the possibility of Article 14 being attracted against
the statute was highlighted to justify a particular
interpretation as already noted. It was also observed
that it would be ironic if in the name of speedy
recovery contemplated by the statute, a creditor is
enabled to recover claims beyond the period of
limitation. In this context, it would be fair to infer that
the special adjudicatory role envisaged under
Section 86(1)(f) also appears to be for speedy
resolution so that a vital developmental factor —
electricity and its supply is not adversely affected by
delay in adjudication of even ordinary civil disputes
by the civil court. Evidently, in the absence of any
reason or justification the legislature did not
contemplate to enable a creditor who has allowed
the period of limitation to set in, to recover such
delayed claims through the Commission. Hence we
hold that a claim coming before the Commission
cannot be entertained or allowed if it is barred by
limitation prescribed for an ordinary suit before the
civil court. ……”
(emphasis supplied)
This case is most apposite. As in the present case, and as is
reflected in the Insolvency Law Committee Report of March,
2018, the legislature did not contemplate enabling a creditor
who has allowed the period of limitation to set in to allow such
delayed claims through the mechanism of the Code. The Code
cannot be triggered in the year 2017 for a debt which was time-
41
barred, say, in 1990, as that would lead to the absurd and
extreme consequence of the Code being triggered by a stale or
dead claim, leading to the drastic consequence of instant
removal of the present Board of Directors of the corporate
debtor permanently, and which may ultimately lead to liquidation
and, therefore, corporate death. This being the case, the
expression “debt due” in the definition sections of the Code
would obviously only refer to debts that are “due and payable”
in law, i.e., the debts that are not time-barred. That this is the
case has already been held by us in the Innoventive
Industries Ltd. (supra) as follows:
“28. When it comes to a financial creditor triggering
the process, Section 7 becomes relevant. Under the
Explanation to Section 7(1), a default is in respect of
a financial debt owed to any financial creditor of the
corporate debtor — it need not be a debt owed to
the applicant financial creditor. Under Section 7(2),
an application is to be made under sub-section (1) in
such form and manner as is prescribed, which takes
us to the Insolvency and Bankruptcy (Application to
Adjudicating Authority) Rules, 2016. Under Rule 4,
the application is made by a financial creditor in
Form 1 accompanied by documents and records
required therein. Form 1 is a detailed form in 5 parts,
which requires particulars of the applicant in Part I,
particulars of the corporate debtor in Part II,
particulars of the proposed interim resolution42
professional in Part III, particulars of the financial
debt in Part IV and documents, records and
evidence of default in Part V. Under Rule 4(3), the
applicant is to dispatch a copy of the application
filed with the adjudicating authority by registered
post or speed post to the registered office of the
corporate debtor. The speed, within which the
adjudicating authority is to ascertain the existence of
a default from the records of the information utility or
on the basis of evidence furnished by the financial
creditor, is important. This it must do within 14 days
of the receipt of the application. It is at the stage of
Section 7(5), where the adjudicating authority is to
be satisfied that a default has occurred, that the
corporate debtor is entitled to point out that a default
has not occurred in the sense that the “debt”, which
may also include a disputed claim, is not due. A debt
may not be due if it is not payable in law or in fact.
The moment the adjudicating authority is satisfied
that a default has occurred, the application must be
admitted unless it is incomplete, in which case it
may give notice to the applicant to rectify the defect
within 7 days of receipt of a notice from the
adjudicating authority. Under sub-section (7), the
adjudicating authority shall then communicate the
order passed to the financial creditor and corporate
debtor within 7 days of admission or rejection of
such application, as the case may be.”
(emphasis supplied)
xxx xxx xxx
“30. On the other hand, as we have seen, in the
case of a corporate debtor who commits a default of
a financial debt, the adjudicating authority has
merely to see the records of the information utility or
other evidence produced by the financial creditor to
satisfy itself that a default has occurred. It is of no
matter that the debt is disputed so long as the debt
43
is “due” i.e. payable unless interdicted by some law
or has not yet become due in the sense that it is
payable at some future date. It is only when this is
proved to the satisfaction of the adjudicating
authority that the adjudicating authority may reject
an application and not otherwise.”
(emphasis supplied)
22. We have already seen from the judgment in V.R.
Kalliyanikutty (supra), that the expression “due” will depend
upon the context in which that word appears. It will be seen
from a reading of the definition of “debt” in Section 3(11) of the
Code, that “debt” is said to mean a liability or obligation in
respect of a claim which is “due” from any person, and includes
a financial debt and an operational debt. “Financial debt” is
defined in Section 5(8) as follows:
“5. Definitions.—In this Part, unless the context
otherwise requires,—
xxx xxx xxx
(8) “financial debt” means a debt along with interest,
if any, which is disbursed against the consideration
for the time value of money and includes—
(a) money borrowed against the payment
of interest;
(b) any amount raised by acceptance
under any acceptance credit facility or its
de-materialised equivalent;
44
(c) any amount raised pursuant to any note
purchase facility or the issue of bonds,
notes, debentures, loan stock or any
similar instrument;
(d) the amount of any liability in respect of
any lease or hire purchase contract which
is deemed as a finance or capital lease
under the Indian Accounting Standards or
such other accounting standards as may
be prescribed;
(e) receivables sold or discounted other
than any receivables sold on non-recourse
basis;
(f) any amount raised under any other
transaction, including any forward sale or
purchase agreement, having the
commercial effect of a borrowing;
Explanation.—For the purposes of this sub-
clause,—
(i) any amount raised from an allottee
under a real estate project shall be
deemed to be an amount having the
commercial effect of a borrowing; and
(ii) the expressions, “allottee” and “real
estate project” shall have the
meanings respectively assigned to
them in clauses (d) and (zn) of Section
2 of the Real Estate (Regulation and
Development) Act, 2016 (16 of 2016);
(g) any derivative transaction entered into
in connection with protection against or
benefit from fluctuation in any rate or price
and for calculating the value of any
derivative transaction, only the market
value of such transaction shall be taken
into account;
(h) any counter-indemnity obligation in
respect of a guarantee, indemnity, bond,
documentary letter of credit or any other
45
instrument issued by a bank or financial
institution;
(i) the amount of any liability in respect of
any of the guarantee or indemnity for any
of the items referred to in sub-clauses (a)
to (h) of this clause;”
Operational debt is defined in Section 5(21) as follows:
“5. Definitions.—In this Part, unless the context
otherwise requires,—
xxx xxx xxx
(21) “operational debt” means a claim in respect of
the provision of goods or services including
employment or a debt in respect of the payment of
dues arising under any law for the time being in
force and payable to the Central Government, any
State Government or any local authority;”The definition of “default” in Section 3(12) uses the expression
“due and payable” followed by the expression “and is not paid
by the debtor or the corporate debtor……”. “Due and payable”
in Section 3(12), therefore, only refers to the whole or part of a
debt, which when referring to the date on which it becomes
“due and payable”, is not in fact paid by the corporate debtor.
The context of this provision is therefore actual non-payment by
the corporate debtor when a debt has become due and
payable.
46
23. Section 7 applies to a financial creditor who may file an
application for initiating a corporate insolvency resolution
process against a corporate debtor when a “default” has
occurred. The same expression is used when it comes to an
operational creditor, who may on the occurrence of a “default”
under Section 8, deliver a demand notice as may be
prescribed. What throws considerable light on the expression
“default” is Section 8(2)(a) which reads as follows:
“8. Insolvency resolution by operational creditor.
—
xxx xxx xxx
(2) The corporate debtor shall, within a period of ten
days of the receipt of the demand notice or copy of
the invoice mentioned in sub-section (1) bring to the
notice of the operational creditor—
(a) existence of a dispute, if any, or record of
the pendency of the suit or arbitration
proceedings filed before the receipt of such
notice or invoice in relation to such dispute;”
It will be seen from a reading of Section 8(2)(a) that the
corporate debtor shall, within a period of 10 days of the receipt
of the demand notice, bring to the notice of the operational
creditor the existence of a “dispute”. We have seen that
47
“dispute” as defined in Section 5(6) includes a suit or arbitration
proceeding relating to certain matters. Again, under Section
8(2)(a), the corporate debtor may, in the alternative, disclose
the pendency of a suit or arbitration proceedings filed before
the receipt of the demand notice. It is clear therefore, that at
least in the case of an operational creditor, “default” must be
non-payment of amounts that have become due and payable in
law. The “dispute” or pendency of a suit or arbitration
proceedings would necessarily bring in the Limitation Act, for if
a suit or arbitration proceeding is time-barred, it would be liable
to be dismissed. This again is an important pointer to the fact
that when the expression “due” and “due and payable” occur in
Sections 3(11) and 3(12) of the Code, they refer to a “default”
which is non-payment of a debt that is due in law, i.e., that such
debt is not barred by the law of limitation. It is well settled that
where the same word occurs in a similar context, the draftsman
of the statute intends that the word bears the same meaning
throughout the statute (see Bhogilal Chunilal Pandya v. State
of Bombay, 1959 Supp. (1) SCR 310 at 313-314). It is thus
clear that the expression “default” bears the same meaning in
48
Sections 7 and 8 of the Code, making it clear that the corporate
insolvency resolution process against a corporate debtor can
only be initiated either by a financial or operational creditor in
relation to debts which have not become time-barred.
24. Strong reliance was placed by Shri Dholakia on France
B. Martins v. Mafalda Maria Teresa Rodrigues, (1999) 6 SCC
627, by which Section 24A was inserted in the Consumer
Protection Act, 1986 by a 1993 amendment, making the
provisions of the Limitation Act applicable to the Consumer
Protection Act. In turning down the plea that Section 24A would
cover the period from 1986 to 1993, this Court held that the
legislature in its wisdom thought it appropriate not to prescribe a
period of limitation for proceedings under the Act as the object
of that Act was for the better protection of the interest of
consumers. The Court, therefore, held that the addition of
Section 24A in the Act shows that initially, the legislature did not
intend to prescribe any period of limitation for filing complaints
under the Act as it would stultify the beneficent social legislation
contained therein. This case is again wholly distinguishable in
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that the Court found that the Consumer Protection Act is a
beneficial social legislation, whose object was not to apply the
Limitation Act when it was first enacted. On the contrary, in the
present case, we find that the object of the Code was
subserved by applying Section 433 of the Companies Act from
the very inception of the Code. Also, the Insolvency Law
Committee Report of March, 2018 makes it clear that the object
of the Code from the very beginning was not to allow dead or
stale claims to be resuscitated. In this view of the matter, we are
afraid that this judgment also would have no bearing.
25. The chart handed up by Shri Dholakia, in which he wished
to demonstrate that various tribunals under different Acts either
apply or do not apply the Limitation Act, again leads us
nowhere. Depending upon the intention of the legislature in
each of the enactments mentioned in the chart, either the
legislature thought it fit to apply the Limitation Act, or it did not,
depending upon the subject matter of the Act in question. We
have held that at least insofar as the Code is concerned, the
intention of the legislature, from the very beginning, was to
50
apply the Limitation Act to the NCLT and the NCLAT while
deciding applications filed under Sections 7 and 9 of the Code
and appeals therefrom. Section 433 of the Companies Act,
which applies to the Tribunal and the Appellate Tribunal,
expressly applies the Limitation Act to the Appellate Tribunal,
the NCLAT, as well. Also, the argument that the NCLAT is an
appellate tribunal which is common to three statutes, under one
of which, viz., the Competition Act, no period of limitation has
been prescribed, would not lead to any anomalous situation.
When the Appellate Tribunal, i.e., the NCLAT decides an appeal
under the Competition Act, since an appeal is a continuation of
the application filed before the Competition Commission (See
Lachmeshwar Prasad Shukul and Ors. v. Keshwar Lal
Chaudhuri and Ors., AIR 1941 FC 5), the NCLAT will decide
the appeal on the footing that the Limitation Act did not apply to
an application made before the Competition Commission. On
the other hand, insofar as applications are filed under Section 7
or 9 of the Code, or petitions or applications filed under the
Companies Act, the NCLAT will decide such
petitions/applications on the footing that the Limitation Act will
51
apply to such petitions/applications. Merely because appeals
under different statutes are sent to one appellate tribunal would
make no difference to the position in law. Undoubtedly, if three
separate appellate tribunals had been constituted under the
three enactments in question, this argument would have no legs
to stand on. Merely because, from the point of view of
convenience, appeals are filed before one appellate forum
would not mean that any anomalous situation would arise as
each appeal would be decided keeping in mind the provisions of
the particular Act in question. Therefore, this argument also
must be rejected.
26. Shri Dholakia argued that the Code being complete in
itself, an intruder such as the Limitation Act must be shut out
also by application of Section 238 of the Code which provides
that, “notwithstanding anything inconsistent therewith contained
in any other law for the time being in force”, the provisions of
the Code would override such laws. In fact, Section 60(6) of the
Code specifically states as follows:
“60. Adjudicating Authority for corporate
persons.—
52
xxx xxx xxx
(6) Notwithstanding anything contained in the
Limitation Act, 1963 (36 of 1963) or in any other law
for the time being in force, in computing the period
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.”
This provision would have been wholly unnecessary if the
Limitation Act was otherwise excluded either by reason of the
Code being complete in itself or by virtue of Section 238 of the
Code. Both, Section 433 of the Companies Act as well as
Section 238A of the Code, apply the provisions of the Limitation
Act “as far as may be”. Obviously, therefore, where periods of
limitation have been laid down in the Code, these periods will
apply notwithstanding anything to the contrary contained in the
Limitation Act. From this, it does not follow that the baby must
be thrown out with the bathwater. This argument, therefore,
must also be rejected.
27. It is thus clear that since the Limitation Act is applicable to
applications filed under Sections 7 and 9 of the Code from the
inception of the Code, Article 137 of the Limitation Act gets
53
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.
28. In view of our finding that the Limitation Act has in fact
been applied from the inception of the Code, it is unnecessary
for us to go into the arguments based on the doctrine of laches.
The appeals are therefore remanded to the NCLAT to decide
the appeals afresh in the light of this judgment.
…………………………..J.
(R.F. Nariman)
…………………………..J.
(Navin Sinha)
New Delhi;
October 11, 2018.
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