“Explore the intricacies of admitting time-barred claims under IBC Section 18(1)(b). Uncover the duty of the Insolvency Resolution Professional (IRP), the impact of Section 238A, and the definition of claims under the Code. Delve into the committee report’s insights on the applicability of the Limitation Act and the challenges posed by time-barred debts. Gain clarity on the admission of claims barred by limitation and the implications on the Corporate Insolvency Resolution Process.”
Under section 18(1)(b) of the Insolvency and Bankruptcy Code, 2016 (Code), it is the duty of Insolvency Resolution Professional (IRP) to receive and collate all the claims submitted by the creditors to him, pursuant to the public announcement made under section 13 and 15. In pursuance to Regulation 13 of the IBBI (Insolvency Resolution Process for Corporate Persons) Regulations, 2016 (CIRP Regulations), the IRP/RP shall verify the claim, as on the insolvency commencement date, within 7 days from the last date of the receipt of the claims, and thereupon maintain a list of creditors containing names of creditors along with the amount claimed by them, the amount of their claims admitted and the security interest, if any, in respect of such claims and update it.
Now, the question is that whether IRP/RP should accept the time barred claims filed during the Corporate Insolvency Resolution Process (CIRP). First of all, it is pertinent to mention that initially the Law of Limitation was not applicable to Code but a new section 238A was inserted by the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 dated 17.08.2028 with effect from 06.06.2018. As per the said section, the provisions of the Limitation Act applicable to the proceedings or appeals before the Adjudicating Authority (NCLT), National Company Law Appellate Tribunal (NCLAT), Debt Recovery Tribunal (DRT) or Debt Recovery Appellate Tribunal (DRAT), as the case may be.
By perusal of the aforesaid new provisions, it is clear that new section is applicable only to proceedings or appeals before NCLT, NCLAT, DRT or DRAT. It is not applicable to Regulation 13 of CIRP Regulations (i.e. verification of claim). However, to give the legal teeth to the aforesaid query, it is necessary to analyze the definition of claim provided under section 3(6) of the Code i.e.
‘Claim’ means-
a) a right to payment, whether or not such right is reduced to judgment, fixed, disputed, undisputed, legal, equitable, secured or unsecured;
b) right to remedy for breach of contract under any law for time being in force, if such breach gives rise to a right to payment, whether or not such right is reduced to judgment, fixed, matured, un- matured, disputed, undisputed, secured or unsecured;
In view of the above definition of claim, time barred claim is not covered as such. However, to enlarge discussion, please refer to para 28 (Application of Limitation Act, 1963) of The Insolvency Law Committee (Second Report) dated March 26, 2018, which are as under-
“28.1 The question of applicability of the Limitation Act, 1963 (“Limitation Act”) to the Code has been deliberated upon in several judgments of the NCLT and the NCLAT. The existing jurisprudence on this subject indicates that if a law is a complete code, then an express or necessary exclusion of the Limitation Act should be respected. In light of the confusion in this regard, the Committee deliberated on the issue and unanimously agreed that the intent of the Code could not have been to give a new lease of life to debts which are time-barred. It is settled law that when a debt is barred by time, the right to a remedy is time-barred. This requires being read with the definition of ‘debt’ and ‘claim’ in the Code. Further, debts in winding up proceedings cannot be time-barred, and there appears to be no rationale to exclude the extension of this principle of law to the Code.
28.2 Further, non application of the law on limitation creates the following problems: first, it re-opens the right of financial and operational creditors holding time barred debts under the Limitation Act to file for CIRP, the trigger for which is default on a debt above INR one lakh. The purpose of the law of limitation is “to prevent disturbance or deprivation of what may have been acquired in equity and justice by long enjoyment or what may have been lost by a party’s own inaction, negligence or laches”. Though the Code is not a debt recovery law, the trigger being ‘default in payment of debt’ renders the exclusion of the law of limitation counter intuitive. Second, it re-opens the right of claimants (pursuant to issuance of a public notice) to file time barred claims with the Insolvency Resolution Professional or Resolution Professional, which may potentially be a part of the resolution plan. Such a resolution plan restructuring time-barred debts and claims may not be in compliance with the existing laws for the time being in force as per Section 30(4) of the Code.
28.3 Given that the intent was not to package the Code as a fresh opportunity for creditors and claimants who did not exercise their remedy under existing laws within the prescribed limitation period, the committee thought it fit to insert a specific section applying the Limitation Act to the Code.”
In view of the committee report, the intent of the Code could not have been to give a new lease of life to debts which are time-barred and also the intent was not to package the Code as a fresh opportunity for creditors and claimants who did not exercise their remedy under existing laws within the prescribed limitation period.
Now, it is pertinent to mention that as on date, the claimants whose claims are barred by the law of limitation cannot trigger insolvency against the Corporate Debtor. So, it cannot wrong to say that if a creditor with a time-barred claim cannot trigger insolvency by filing an application under Section 7 or Section 9 of the Code, he cannot indirectly be a part of the Insolvency Resolution Process of the Corporate Debtor by filing time-barred claims before the IRP/RP.
Admission of claim barred by limitation
It is noted that a section 7 application against the M/s Wianxx Impex Private Limited (CD) filed by Ms. Ekta Khare was rejected by Hon’ble NCLT, Special Bench, New Delhi vide order dated 26.02.2019 on the ground that the debt of Ms. Khare was barred by limitation. However, it is noted that post admission of the CD into CIRP, Ms. Khare submitted her claim form in the category of creditor in a class and the same was admitted by IRP in disregard to NCLT order dated 26.02.2019.
Accordingly, the IBBI, vide DC order dated 26th May, 2023, held the prima facie view that by admitting the claim barred by limitation, Mr. Baser had acted in a negligent and biased manner thereby violating inter alia Section 17(2)(e) of the Code, 208(2) (a) of the Code, Regulation 13(1) of the CIRP Regulations, Regulation 7(2) (a) and 7(2)(h) of IP Regulations read with Clause 1, 2 and 14 of the Code of Conduct for Insolvency Professionals under First Schedule to IP Regulations (Code of Conduct).
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