Section 7 Application under IBC governed by Article 137 of Limitation Act, Supreme Court

Supreme Court has held that applications under Section 7 of Insolvency and Bankruptcy Code (IBC) are governed by Article 137 of the Limitation Act for computation of limitation period..The judgment was rendered by a Bench of Justices Rohinton Nariman, R Subhash Reddy and Surya Kant..In the present case, the Respondent No. 2 was declared NPA on July 21, 2011. At that point of time, the State Bank of India filed two OAs in the Debt Recovery Tribunal in 2012 in order to recover a total debt of 50 Crores of rupees..Meanwhile, by an assignment dated March 28, 2014, the State Bank of India assigned the debt to Respondent No. 1. The Debt Recovery Tribunal held that the OAs filed before it were not maintainable..Against the judgment, Special Civil Applications were filed before the Gujarat High Court which resulted in the High Court remanding the aforesaid matter. From this order, a Special Leave Petition was dismissed on March 25, 2017..An independent proceeding was then begun by Respondent No. 1 on October 3, 2017 in the form of a Section 7 application filed under the Insolvency and Bankruptcy Code in order to recover the original debt together with interest which amounted to about Rs. 124 Crores..In the Form-I that has statutorily to be annexed to the Section 7 application in Column II which was the date on which default occurred, the date of the NPA i.e. July 21, 2011 was filled up. The NCLT applied Article 62 of the Limitation Act which provides for a Limitation period of 12 years with respect to suits to enforce payment of money secured by a mortgage or otherwise charged upon immovable property. The limitation period as per the said Article begins when the money sued for becomes due..Applying the said Article, the NCLT came to the conclusion that since the limitation period was 12 years from the date on which the money suit had become due, the claim was filed within limitation. It, therefore, admitted the Section 7 application..On appeal, the NCLAT held that the time of limitation would begin running for the purposes of limitation only on and from December 1, 2016 which is the date on which the Insolvency and Bankruptcy Code was brought into force. Consequently, it dismissed the appeal leading to the current appeal in Supreme Court..Advocate Aditya Parolia, appearing on behalf of the appellant, argued that Article 137 of the Limitation Act being a residuary article would apply to the facts of this case. Since the right to sue accrued only on and from July 21, 2011, and three years having elapsed since then in 2014, the Section 7 application filed in 2017 was out of time, he urged..Senior Counsel Debal Banerjee, appearing on behalf of the respondents, countered this by stressing on para 7 of the judgment in BK Educational Services Private Limited v. Parag Gupta and Associates and reiterated the finding of the NCLT that it would be Article 62 of the Limitation Act that would be attracted to the facts of this case. He further argued that being a commercial Code, a commercial interpretation has to be given so as to make the Code workable..The Supreme Court held that Article 62 is out of the way on the ground that it would only apply to suits. The present case being “an application” which is filed under Section 7, would fall only within the residuary Article 137..The time, therefore, would begin to run on July 21, 2011, as a result of which the application filed under Section 7 would clearly be time-barred, the Court ruled..Regarding the argument that a commercial interpretation must be given, the Court said that.“it is not for us to interpret, commercially or otherwise, articles of the Limitation Act when it is clear that a particular article gets attracted. It is well settled that there is no equity about limitation.”.It, therefore, allowed the appeal and set aside the judgment of NCLT and NCLAT..[Read Judgment].Bar & Bench is available on WhatsApp. For real-time updates on stories, Click here to subscribe to our WhatsApp.