Insolvency is the situation in where debtor is not in a position to pay back his
creditor and bankruptcy is the legal declaration of Insolvency. All insolvencies
need not lead to bankruptcy. The Insolvency and bankruptcy code of 2016 has
successive procedure of Insolvency resolution, failing to which, it leads to
Bankruptcy followed by liquidation of assets. The code is to consolidate and
amend the laws and regulation relating reorganization and insolvency resolution
of corporate persons, partnership firms and individuals in a time bound manner
for maximization of value of assets of such person, to promote entrepreneurship,
availability of credit and makes it easier for weak companies to exit or
restructure their businesses. This code is applicable to all sort of business
entities including companies, limited liability partnerships (LLP),
partnerships, and individuals etc.
It is known that Insolvency & Bankruptcy Code came into effect from 1stDecember
2016. Since, I & B Code was introduced, there has been dispute as to whether I &
B Code can override Limitation Act in absence of any specific provision of
limitation incorporated therein.
Whether the Limitation Act applies on I and B code
The code has been used by several creditors to recover their dues or debts in
such cases many questions have been raised, one of among those questions is
whether for a time-barred claim/debt an application under the I&B code can be
filed. The question has arisen in number of cases. There is no provision in the
code which specifically makes limitation act applicable to the I & B code
butearlier when the applicability of the Limitation Act was judged upon by the
National Company Law Tribunal (NCLT), they had held that the same would very
much be applicable on the IBC.
In Deem Roll-Tech Limited v. M/S R.L. Steel & Energy Ltd.
pertaining to initiation of CIRP for a time-barred claim came before the
Principal Bench of NCLT. The bench held that the period of limitation would be
applicable as the claim made by the operational creditor is beyond the
prescribed will be barred by the limitation act i.e. 3 years.
The view of the
“Section 255 of IBC provides that the Companies Act, 2013 shall be amended in
the manner specified in the eleventh schedule to I & B code and a perusal of the
eleventh schedule of I & B code discloses the amendments made to the Companies
Act of several provisions though not Section 433 of the Companies Act wherein
specifically the provisions of the Limitation Act is made applicable and that it
shall, as far as may be apply to the proceedings or appeals before the Tribunal
or Appellate tribunal as the case may be.”
Therefore, the I & B code is silent on the grounds of on what date the
insolvency resolution must be filed then of course in the absence of specific
bar in I & B code, the application of limitation act read with Section 433 of
the companies act, the debt, which is barred by the limitation, cannot be the
basis for invoking I & B code under NCLT/NCLAT.
A similar question arose in Sanjay Bagrodia v. Sathyam Green Power Pvt.
.before the Principal Bench at New Delhi. To counter the plea that
Limitation Act will be applicable to proceedings under I & B code, the counsel
for the operational creditor contended that tribunals are creatures of a statute
and the Limitation Act, 1963 cannot be read into the Statutes creating the
Tribunals unless it is expressly provided. He drew the attention of the Bench to
Section 238 of I & B code and argued that this is a non-obstante clause which
provide that theI & B codewill have its effect notwithstanding anything
inconsistent therewith contained in other laws for the time being in force.The
bench relied on its decision in Deem Roleand held that limitation period is
applicable and that the rule of prudence requires that public policy of law must
be given effect which is widely followed.
Hon'ble Justice MM Kumar in Sanjay Bagrodia
also referred Section 60(6) of the
Code and held that it provides for application of Limitation Act, 1963 to the I
& B Code. The section provides as follows:
"Notwithstanding anything contained in the Limitation Act, 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"
However, the position since has been changed, The National Company Law Appellate
Tribunal ("NCLAT") has recently in the case ofNeelkanth Township and
Construction Pvt. Ltd. v. Urban Infrastructure Trustees Limitedruled that
the Limitation Act, 1963 is not applicable to the Insolvency & Bankruptcy Code,
2016 ("IBC"). In effect, the NCLAT has held that debts which were otherwise not
recoverable due to being time barred, can now be basis for initiating insolvency
Brief Facts of the case:-an appeal filed by a corporate debtor (Neelkanth
Township & Construction Pvt. Ltd.) against the order of the National Company Law
Tribunal ("NCLT") allowing commencement of insolvency proceedings on the action
of the financial creditor (Urban Infrastructure Trustees Ltd.). The financial
creditor had subscribed to optionally convertible debentures ("OCDs") issued by
the corporate debtor. OCDs carried nil or 1% p.a. interest rate and matured in
years 2011, 2012 and 2013.The Appellant challenged the impugned order on
several grounds, one of which is the time barred debt cannot be enforced by
filing of application for corporate insolvency resolution process. The Appellant
contented that the claim of respondent is completed time barred as the Debenture
Certificates were due for redemption as far back as in the years 2011, 2012 and
2013 respectively; consequently, the application filed in the year 2017 is
hopelessly time barred. judgement
Contention by Corporate Debtor on Limitation before (NCLT and NCLAT):The 3
years limitation period for seeking remedy for the debenture certificates has
already expired since the date of its maturity as the debt is related to years
2011, 2012 and 2013.
Before National Company Law Tribunal:
NCLT vide its order dated 25.04.2017 in
its order categorically dealt on limitation that since the debtor company is a
private limited company and for these OCDs cannot be transferred like in a
public company. And further a non-payment on its maturity takes away its
marketable nature and does not require a stamp duty.
Question of time-barred debts is ‘ex-facie’ and therefore such argument is
baseless. It need not be profoundly said that admission appearing in the
financial statement is an acknowledgement covered by S.18 of Limitations Act. It
is ‘in-rem’ in nature and construed as existence of debt.
Before National Company Law Appellate Tribunal:
The NCLAT dismissed the appeal
and held that that in the absence of any provision in I & B code, the Limitation
Act, 1963 would not be applicable to initiation of Corporate Insolvency
Resolution Process. The bench further observed and followed as:
"The I & B Code, 2016 is not an Act for recovery of money claim, it relates to
initiation of Corporate Insolvency Resolution Process. If there is a debt which
includes interest and there is default of debt and having continuous course of
action, the argument that the claim of money by Respondent is barred by
Limitation cannot be accepted.
Therefore, as of now the law stands on the footing that for bringing application
under I&B Code, 2016, adherence to Limitation Act, 1963 is not required. Even
when a creditor comes up with a time-barred claim/ debt, the process of
Corporate Insolvency Resolution Process can be initiated at his instance. The
ruling of the NCLAT is in consonance with the propounded object of the Code i.e.
it is not a forum or tool for debt recovery but a platform for reinstating and
revival of business which cannot be denied merely because the claim has become
time-barred and there can be no default in respect of the same”.
held that “We do not find any reason to interfere with the order
dated 11.08.2017 passed by the National Company Law Appellate Tribunal, New
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.”
The same contention again raised in the following case of Black Pearls Hotel
Pvt. Ltd v. Planet M Retail Ltd.
Where the National Company Law Appellate
Tribunal again examined the issue whether the period of limitation prescribed
under Limitation Act 1963 is applicable to bankruptcy code 2016.The NCLT
dismissed the insolvency application mainly on the ground that the debt was time
barred under the Limitation Act. NCLT held that “when the debt was a time barred
one there was no legal obligation on part of the corporate debtor to pay the
same and due to lapse of time the right to sue was barred by limitation and
hence in this case there was no debt as defined in the Code.
This impugned order of the NCLT was challenged by the appellant before the
National Company Law Appellate Tribunal (“NCLAT”). Appellate Authority
reaffirmed its earlier judgment in Neelkanth Township’s case
where it was
held that the Limitation Act is not applicable to the Code.
The Supreme Court has kept this issue open as it has not given any finding on
this. Interesting aspect is Limitation Act was enacted as a guiding factor to
put a time within which any available legal remedy is to be exercised where an
enactment is not having any specific provision towards limitation.
The limitation factor has a reference under Section 60(6) and 179(3) of I & B
Code, 2016 which are almost similar in wording. However, a quick reference can
be made to Section 60(6) as below:
“Notwithstanding anything contained in the Limitation Act 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.”
Additionally, what will be the outcome by Supreme Court on the possible
interpretation finally is not known at this point of time. However, it must be
understood that any interpretation shall be subjected to the following crucial
factors as well:
·It is also a fact that all enactments are prospective in its
applicability unless the intent and object of the legislation is to give any
·It is also a trite law that no person can sleep over his/her right and
come to Court for a remedy after infinite time.
·If any enactment lacks a categorical provision of limitation then it
shall be resorted to Limitation Act, 1963 otherwise the Limitation Act will
At the same, the insolvency process is an independent process with different
objective andcan beinitiated at any given point of time. But, the proceedings
and passing the bar of limitation shall be dependent upon further 3 legs as
1st Leg of Claim– Section 3(6)
2nd Leg of Debt– Section 3(11)
3rd Leg of Default– Section 3(12)
These need to be read together as well while concluding on any aspect including
limitation if it is to be made applicable.
Though there cannot be a blanket no for applicability of limitation on I & B
Code, 2016 but all factors have to be read, understood, analyzed and implemented
to carry out the harmonious object and intent of the legislation.
Hence, it may be in the totality of provisions as stated above, the question of
applicability of Limitation Act, 1963 on I & B Code,2016 must have been kept
open in Neelkanth Township and Construction Pvt. Ltd. by the Supreme Court.
 Company Application No. (I.B.) 24/PB/2017
 C.P. No. (IB)108(PB)/2017, MANU/NC/0465/2017.
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 Company Appeal (AT) (Insolvency) No. 44 of 2017
 Company Appeal (AT) (Insolvency) No.91 of 2017
 Supranote 8