Can action taken by a Financial Institution under the SARFAESI Act be excluded under Section 14(2) Limitation Act? Five-Member NCLAT Bench to decide

A five-member Bench of the National Company Law Appellate Tribunal (NCLAT) will soon decide if action taken by a Financial Institution under Section 13(4) of the SARFAESI Act qualifies as a “proceeding before a Court of Law" for the purpose of excluding its duration under Section 14(2) of the Limitation Act for an insolvency proceeding.

Section 14(2) of the Limitation Act reads as follows,

Exclusion of time of proceeding bona fide in court without jurisdiction. —

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(2)In computing the period of limitation for any application, the time during which the applicant has been prosecuting with due diligence another civil proceeding, whether in a court of first instance or of appeal or revision, against the same party for the same relief shall be excluded, where such proceeding is prosecuted in good faith in a court which, from defect of jurisdiction or other cause of a like nature, is unable to entertain it.

An order to this effect was passed by two-member bench of Chairperson SJ Mukhopadhyay and member (Judicial) Bansi Lal.

In November 2019, a three-member Bench of NCLAT had passed an order holding that the period of action taken under SARFAESI Act, 2002 could be exclused under Section 14(2) of the Limitation Act.

While deciding a Corporate Debtor's contention that the Section 7 IBC plea against it was time barred, the three-member Bench comprising Member (Judicial) Justice Jarat Kumar Jain and Members (Technical) Balvinder Singh, Dr. Ashok Kumar Mishra had held that since the Financial Creditor concerned had bonafidely prosecuted his application under SARFAESI Act, such period should be excluded under Section 14(2) of Limitation Act.

In contrast, the two-member bench headed by Justice Mukhopadhyay opined as follows,

“.. action taken by a Financial Institution under Section 13(4) of the SARFEASI Act is not a proceeding before a Court of Law nor before the Tribunal and if any application is filed before the Debts Recovery Tribunal against such action, is also in terms of the SARFEASI Act, 2002, therefore, it cannot be held to be a proceeding moved before a wrong forum for the purpose of Section 14(2) of the Limitation Act.”

In view of the inconsistency, the two-member Bench deemed it appropriate to refer the matter to a larger bench of five members.

It ordered,

Senior Advocate Ramji Srinivasan with Advocates Avishkar Singhvi, Dhruv Surana, Nipun Katyal appeared for the Appellant before the NCLAT.

The Respondents were represented by Senior Advocate Gourab Banerji with Advocates Ninad Laud, Ananyaa Mazumdar, Raka Chatterjee, Sahil Tagotra, Subro Mukherjee.

The Resolution Professional was represented by Advocate P K Mittal.

Read the two Member-Bench Order:

Read the three-Member Bench Order: