Limitation Act applies to all Creditor Filings under IBC, Supreme Court

While quashing a judgment passed by the NCLAT, the Supreme Court today held that the Limitation Act will continue to apply to applications filed by creditors, and if three years have passed since the date of default, the application would be barred..“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”, a Bench of Justice Rohinton Nariman and Justice Navin Sinha held..While the case was pending with the Supreme Court since January 2018, Section 238A was inserted in the IBC more recently in June 2018, which clarified that provisions of Limitation Act will continue to apply ‘as far as may be’ to proceedings before the NCLT and NCLAT..The respondents in this case, in favour of whom the NCLAT ruling was passed, however, argued against the retrospective application of this provision and asserted that for creditor filings made between December 1, 2016 and June 6, 2018, the NCLAT ruling would prevail. Otherwise, they said, it would take away the vested right of the persons who have filed under Sections 7 and 9 prior to the introduction of Section 238A..Given that NCLAT acts as a common appellate body for three laws – Competition Act, Companies Act and IBC – the respondents argued that an incongruous situation would arise if the NCLAT had to apply the Limitation Act for one law, while another (Competition Act) statute does not require it to do so..To this, the Supreme Court responded by saying that when the NCLAT decides an appeal under the Competition Act, the appeal is a continuation of the application filed before the Competition Commission, and the NCLAT decides the appeal on the footing that the Limitation Act did not apply before the Competition Commission. This is not the case for Section 7 & 9 applications. In Sections 7 & 9 applications, the law of limitation applies from the beginning..Once the NCLT was constituted, proceedings of Companies Act pending before various courts also stood transferred to the NCLT. This included winding up petitions under the Companies Act as well, to which provisions of Limitation Act expressly apply. In such a case, the Court observed, it would be absurd to say that merely because such proceedings are now transferred, law of limitation would cease to apply. At the same time, it would also be equally absurd to say that the Limitation Act will apply only to fresh filings made under IBC and not cases which were transferred from Companies Act..While relying on precedents, the Court held that limitation, being procedural in nature, would ordinarily be applied retrospectively, except that the new law of limitation cannot revive a dead remedy. It said,.“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.”.The Court further observed reflection of the Insolvency Law Committee Report of March 2018, wherein it found that 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 IBC..“The IBC cannot be triggered in the year 2017 for a debt which was time barred, say, in 1990, as that would lead to the absurd and extreme consequence of the IBC 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.”.Accordingly, it set aside the order of the NCLAT and asked it to consider the applications afresh..BK Educational Services, the appellant, was represented by Robin David, Dhiraj Philip and Febin Mathew Verghese from Dua Associates..Read the judgment below.