Paragraph numbers below are the court’s original numbering, recovered from the source text.
29. Close on the heels of Gaurav Hargovindbhai Dave (supra), this Court dealt with similar issue yet again in the case of Sagar Sharma (supra), decided on 30.09.2019. Therein, apart from disapproving the proposition that the date of commencement of the Code could be the starting point of limitation (as noticed hereinabove), this Court again pointed out the fallacy in applying the period of limitation related to mortgage liability to the application under Section 7 of the Code and said, – “2…..However, we find in the impugned judgment that Article 62 (erroneously stated to be Article 61) was stated to be attracted to the facts of the present case, considering that there was a deed of mortgage which was executed between the parties in this case. We may point out that an application under Section 7 of the Code does not purport to be an application to enforce any mortgage liability. It is an application made by a financial creditor stating that a default, as defined under the Code, has been made, BABULAL VARDHARJI GURJAR v. VEER GURJAR ALUMINIUM INDUSTRIES PVT. LTD. [DINESH MAHESHWARI, J.] which default amounts to Rs 1,00,000 (Rupees one lakh) or more which then triggers the application of the Code on settled principles that have been laid down by several judgments of this Court.” (emphasis in bold supplied)
30. When Section 238-A of the Code is read with the above- noted consistent decisions of this Court in Innoventive Industries, B.K. Educational Services, Swiss Ribbons, K. Sashidhar, Jignesh Shah, Vashdeo R. Bhojwani, Gaurav Hargovindbhai Dave and Sagar Sharma respectively, the following basics undoubtedly come to the fore: (a) that the Code is a beneficial legislation intended to put the corporate debtor back on its feet and is not a mere money recovery legislation; (b) that CIRP is not intended to be adversarial to the corporate debtor but is aimed at protecting the interests of the corporate debtor; (c) that intention of the Code is not to give a new lease of life to debts which are time-barred; (d) that the period of limitation for an application seeking initiation of CIRP under Section 7 of the Code is governed by Article 137 of the Limitation Act and is, therefore, three years from the date when right to apply accrues; (e) that the trigger for initiation of CIRP by a financial creditor is default on the part of the corporate debtor, that is to say, that the right to apply under the Code accrues on the date when default occurs; (f) that default referred to in the Code is that of actual non-payment by the corporate debtor when a debt has become due and payable; and (g) that if default had occurred over three years prior to the date of filing of the application, the application would be time-barred save and except in those cases where, on facts, the delay in filing may be condoned; and (h) an application under Section 7 of the Code is not for enforcement of mortgage liability and Article 62 of the Limitation Act does not apply to this application. Whether Section 18 Limitation Act could be applied to the present case
31. While the aforesaid principles remain crystal clear with the consistent decisions of this Court, the only area of dispute, around which the contentions of learned counsel for the parties have revolved in the present case, is about applicability of Section 18 of the Limitation Act and effect of the observations occurring in paragraph 21 of the decision in Jignesh Shah (supra).
32. We have noticed all the relevant and material observations and enunciations in the case of Jignesh Shah hereinbefore. Prima facie, it appears that illustrative reference to Section 18 of the Limitation Act, in paragraph 21 of the decision in Jignesh Shah, had only been in relation to the suit or other proceedings, wherever it could apply and where the period of limitation could get extended because of acknowledgment of liability. Noticeably, in contradistinction to the proceeding of a suit, this Court observed that a suit for recovery, which is a separate and independent proceeding distinct from the remedy of winding up would, in no manner, impact the limitation within which the winding up proceeding is to be filed35. It is difficult to read the observations in the aforesaid paragraph 21 of Jignesh Shah to mean that the ratio of B.K. Educational Services has, in any manner, been altered by this Court. As noticed, in B.K. Educational Services, it has clearly been held that the limitation period for application under Section 7 of the Code is three years as provided by Article 137 of the Limitation Act, which commences from the date of default and is extendable only by application of Section 5 of Limitation Act, if any case for condonation of delay is made out. The findings in paragraph 12 in Jignesh Shah makes it clear that the Court indeed applied the principles so stated in B.K. Educational Services, and held that the winding up petition filed beyond three years from the date of default was barred by time. 32.1. Even in the later decisions, this Court has consistently applied the declaration of law in B.K. Educational Services (supra). As noticed, in the case of Vashdeo R. Bhojwani (supra), this Court rejected the contention suggesting continuing cause of action for the purpose of application under Section 7 of the Code while holding that the limitation started ticking from the date of issuance of recovery certificate dated 24.12.2001. Again, in the case of Gaurav Hargovindbhai Dave (supra), where the date of default was stated in the application under Section 7 of the Code to be the date of NPA i.e., 21.07.2011, this Court held that the limitation began to run from the date of NPA and hence, the application filed under Section 7 of the Code on 03.10.2017 was barred by limitation. 32.2. In view of the above, we are not inclined to accept the arguments built up by the respondents with reference to one part of observations occurring in paragraph 21 of the decision in Jignesh Shah (supra). 35What has been observed in relation to the proceeding for winding up, perforce, applies to the application seeking initiation of CIRP under IBC. BABULAL VARDHARJI GURJAR v. VEER GURJAR ALUMINIUM INDUSTRIES PVT. LTD. [DINESH MAHESHWARI, J.]
33. Apart from the above and even if it be assumed that the principles relating to acknowledgement as per Section 18 of the Limitation Act are applicable for extension of time for the purpose of the application under Section 7 of the Code, in our view, neither the said provision and principles come in operation in the present case nor they enure to the benefit of respondent No. 2 for the fundamental reason that in the application made before NCLT, the respondent No. 2 specifically stated the date of default as ‘8.7.2011 being the date of NPA’. It remains indisputable that neither any other date of default has been stated in the application nor any suggestion about any acknowledgement has been made. As noticed, even in Part-V of the application, the respondent No. 2 was required to state the particulars of financial debt with documents and evidence on record. In the variety of descriptions which could have been given by the applicant in the said Part-V of the application and even in residuary Point No. 8 therein, nothing was at all stated at any place about the so called acknowledgment or any other date of default. 33.1. Therefore, on the admitted fact situation of the present case, where only the date of default as ‘08.07.2011’ has been stated for the purpose of maintaining the application under Section 7 of the Code, and not even a foundation is laid in the application for suggesting any acknowledgement or any other date of default, in our view, the submissions sought to be developed on behalf of the respondent No. 2 at the later stage cannot be permitted. It remains trite that the question of limitation is essentially a mixed question of law and facts and when a party seeks application of any particular provision for extension or enlargement of the period of limitation, the relevant facts are required to be pleaded and requisite evidence is required to be adduced. Indisputably, in the present case, the respondent No. 2 never came out with any pleading other than stating the date of default as ‘08.07.2011’ in the application. That being the position, no case for extension of period of limitation is available to be examined. In other words, even if Section 18 of the Limitation Act and principles thereof were applicable, the same would not apply to the application under consideration in the present case, looking to the very averment regarding default therein and for want of any other averment in regard to acknowledgement. In this view of the matter, reliance on the decision in Mahaveer Cold Storage Pvt. Ltd. does not advance the cause of the respondent No. 2.
34. The submissions made on behalf of respondents that the rules of limitation are not meant to destroy the rights of the parties and reference to the decision in N. Balakrishnan (supra) are also misplaced. Application of the rules of limitation to CIRP (by virtue of Section 238- A of the Code read with the above-referred consistent decisions of this Court) does not, in any manner, deal with any of the rights of respondent No. 2; it only bars recourse to the particular remedy of initiation of CIRP under the Code. Equally, the other submissions made on behalf of the respondents about any stringent application of the law of limitation which was introduced to the Code only after filing of the application by respondent No. 2; or about the so called prejudice likely to be caused to other banks and financial institutions are also of no substance, particularly in the light of the principles laid down and consistently followed by this Court right from the decision in B.K. Educational Services (supra). These contentions have only been noted to be rejected. Needless to add that when the application made by the respondent No. 2 for CIRP is barred by limitation, no proceedings undertaken therein after the order of admission could be of any effect. All such proceedings remain non- est and could only be annulled. The reasonings of NCLAT
35. The foregoing discussion practically concludes the principal part of contentions urged in this matter but, to put the record straight, we may also deal with the reasonings adopted by NCLAT in the impugned order dated 14.05.2019. As noticed hereinbefore, though NCLAT has referred to the pendency of the application under Section 19 of the Act of 1993 as also the fact that corporate debtor had made a prayer for OTS in the month of July, 2018 but, has not recorded any specific finding about the effect of these factors. Only two reasons essentially appear to have weighed with NCLAT to hold that the application in question is within limitation: One, that the right to apply under Section 7 of the Code accrued to the respondent financial creditor on 01.12.2016 when the Code came into force; and second, that the period of limitation for recovery of possession of the mortgaged property is twelve years. The reasonings so adopted by NCLAT do not stand in conformity with the law declared by this Court and could only be disapproved.
36. The question as to whether date of enforcement of the Code (i.e., 01.12.2016) provides the starting point of limitation for an application under Section 7 of the Code and hence, the application in question, made in the year 2018, is within limitation, is not even worth devoting much time. A bare look at paragraph 21 of the impugned order leaves nothing to guess that such observations by the Appellate Tribunal had only been assumptive in nature without any foundation and without any basis. There is nothing in the Code to even remotely indicate if the period of limitation BABULAL VARDHARJI GURJAR v. VEER GURJAR ALUMINIUM INDUSTRIES PVT. LTD. [DINESH MAHESHWARI, J.] for the purpose of an application under Section 7 is to commence from the date of commencement of the Code itself. Similarly, nothing provided in the Limitation Act could be taken as the basis to support the proposition so stated by the Appellate Tribunal. In fact, such observations had been in the teeth of law declared by this Court in the case of B. K. Educational Services (supra). 36.1. It appears that at the given point of time, NCLAT had been readily adopting such a proposition in other cases too, so as to treat similar applications within limitation. This approach of NCLAT was specifically disapproved by this Court in Sagar Sharma (supra) where, after observing that in B. K. Educational Services (supra) it had already been made clear that the date of the Code’s coming into force on 01.12.2016 was wholly irrelevant to the triggering of any limitation period for the purposes of the Code, this Court said,- “3. Article 141 of the Constitution of India mandates that our judgments are followed in letter and spirit. The date of coming into force of the IB Code does not and cannot form a trigger point of limitation for applications filed under the Code. Equally, since “applications” are petitions which are filed under the Code, it is Article 137 of the Limitation Act which will apply to such applications.”
37. The other observations as made and the reasoning as adopted by the Appellate Tribunal in paragraphs 29 and 30 of the impugned order, that the property having been mortgaged, the claim is not barred by limitation because of the period of limitation of twelve years with regard to mortgaged property, had again been erroneous and do not stand in conformity with the dictum of this Court. 37.1. The Appellate Tribunal was conscious of the decision of this Court in B. K. Educational Services (supra) wherein it had been held in no uncertain terms that the limitation provided in Article 137 governs the application under Section 7 of the Code. When Article 137, being the residuary provision on the period of limitation for “other applications” is held applicable by this Court for the purpose of reckoning the period of limitation for an application under Section 7 of the Code, it remains rather inexplicable as to how the Appellate Tribunal could have applied any other Article of Limitation Act (and that too relating to suits) for the purpose of such an application? 37.2. In the totality of circumstances, we are also constrained to refer to paragraph 24 of the very same order wherein, the Appellate Tribunal has noticed its own decision in the case of Binani Industries, holding that the period of limitation prescribed in the First Division of the Schedule to the Limitation Act (providing limitation period for suits) is not applicable to the proceedings under the Code. However, the observations and findings in the later part of the impugned order are contrary even to those occurring in the said paragraph 24 of the very same order. 37.3. It again appears that in other cases too, similar reasoning prevailed with the Adjudicating Authorities as also the Appellate Tribunal, where the Articles of the Limitation Act relating to the suits concerning mortgaged property (and thereby the period of limitation of twelve years) were sought to be applied to hold that similar applications under Section 7 of the Code were not barred by limitation. Such propositions were specifically disapproved by a three-Judge Bench of this Court in the case of Gaurav Hargovindbhai Dave (supra) decided on 18.09.2019. As noticed hereinbefore, in Gaurav Hargovindbhai Dave (supra) this Court disapproved the approach of Adjudicating Authority in applying Article 62 of the Limitation Act to such an application under Section 7 of the Code with the observations that Article 62 is out of way, for it applies only to suits; and application under Section 7 falls within the ambit of residuary Article 137. In Sagar Sharma (supra), this Court again pointed out the fallacy in applying the period of limitation related to mortgage liability for the purpose of application under Section 7 of the Code. 37.4. In view of the above, there remains nothing to doubt that the Appellate Tribunal had been in error in applying the period of limitation provided for mortgage liability for the purpose of limitation applicable to the application in question. The observations and findings in paragraphs 29 and 30 of the impugned order are also required to be disapproved. Summation
38. The discussion foregoing leads to the inescapable conclusion that the application made by the respondent No. 2 under Section 7 of the Code in the month of March 2018, seeking initiation of CIRP in respect of the corporate debtor with specific assertion of the date of default as 08.07.2011, is clearly barred by limitation for having been filed much later than the period of three years from the date of default as stated in the application. The NCLT having not examined the question of limitation; the NCLAT having decided the question of limitation on entirely irrelevant considerations; and the attempt on the part of the respondents to save the limitation with reference to the principles of acknowledgment having been found unsustainable, the impugned orders deserve to be set aside BABULAL VARDHARJI GURJAR v. VEER GURJAR ALUMINIUM INDUSTRIES PVT. LTD. [DINESH MAHESHWARI, J.] and the application filed by the respondent No. 2 deserves to be rejected as being barred by limitation. Other proceedings not to be affected
39. Before concluding on this matter, we would hasten to observe that admittedly, at the time of moving of the application under Section 7 of the Code by the respondent No. 2, a petition under Section 19 of the Act of 1993 was pending before DRT against the corporate debtor. In view of admission of the application under Section 7 of the Code by NCLT, the said petition under Section 19 of the Act of 1993 (and any other pending matter against the corporate debtor) could not have proceeded during the period of moratorium in terms of Section 14 of the Code. Now, by virtue of this judgment, the said application under Section 7 of the Code shall stand rejected for being barred by limitation and all the proceedings thereunder shall stand annulled. As a necessary consequence, the moratorium in terms of Section 14 of the Code shall get lifted and, therefore, those stalled proceedings should now be taken up and dealt with by the respective Courts/Tribunals/Authorities, of course, strictly in accordance with law. In the interest of justice, we also make it clear that the observations in this judgment are relevant only in regard to the issue determined that the application under Section 7 of the Code is barred by limitation and not beyond. In other words, nothing in this judgment shall have bearing on any other proceeding that shall be dealt with on its own merits and in accordance with law. Conclusion
40. In view of the above, this appeal is allowed to the extent indicated and with the observations foregoing. The impugned orders dated 14.05.2019 as passed by the National Company Law Appellate Tribunal, New Delhi in Company Appeal (AT) Insolvency No. 549 of 2018 and dated 09.08.2018 as passed by the National Company Law Tribunal, Mumbai Bench in CP(IB)-488/I&BP/MB/2018 are set aside; and the application made by the respondent No. 2 under Section 7 of the Code, seeking initiation of Corporate Insolvency Resolution Process in respect of respondent No. 1 is rejected for being barred by limitation. Consequently, all the proceedings undertaken in the said application under Section 7 of the Code, including appointment of IRP, stand annulled. No costs. Ankit Gyan Appeal allowed.