1. Background of Debate
Effectuated December 2016, the Sick Industrial Companies Act[1] was repealed to pave way to the Insolvency and Bankruptcy Code, 2016[2] (hereinafter “IBC”). The objects of the two acts were different in one substantial aspect: the latter focused on reviving a company so as it continues to survive as a going concern, aimed to act as a beneficial legislation and not merely focused on recovery. Recovery however being quintessential to IBC we saw that it and the Limitation Act, 1963[3] (hereinafter “Limitation Act”), which bars the right to recover money claims after a time lapse of 3 years from the cause of action, came face to face with each other and so became a long debate culminating finally this year. This debate arose on two counts.
First, IBC was always meant to be a complete code in itself, an exhaustive code on the subject matter[4] and so the remedies given thereunder comprehensively cover all matters that it apprehends. Thus, it was naturally understood that IBC is not guided by any other legislative enactment. However it does not have a clause expressly barring application of limitation act which attracts Section 29 of the limitation act which brings us to the second.
Second, the mandate of Section 29 of the Limitation Act makes it abundantly clear that all legislative enactments are to be guided by the Limitation Act “unless such enactment expressly excludes itself”. Now, even the words “expressly excluded” in the section have been interpreted to have a wider import by the Supreme Court (hereinafter “SC”) giving itself the power to interpret by reading of all the provisions of an act to infer such exclusion[5]. The interpretation of such an intention or otherwise rested again with the apex court.
2. Prior to Insolvency and Bankruptcy Code (Second Amendment) Act, 2018
Initially the NCLT held in Neelkanth Township and Construction Pvt. Ltd. v Urban Infrastructure Trustee Ltd.[6] that the “provisions of the IBC cannot be shackled by the Limitation Act”. The court noted:
“There is nothing on the record that Limitation Act, 2013 is applicable to IBC. Learned Counsel for the appellant also failed to lay hand on any of the provision of IBC to suggest that the Law of Limitation Act is applicable. The IBC, 2016 is not an Act for recovery of money claim, it relates to the initiation of Corporate Insolvency Resolution Process. If there is a debt which includes interest and there is default of debt and having a continuous course of action, the argument that the claim of money by Respondent is barred by Limitation cannot be accepted.”
The NCLAT based its decision on the observation in Innoventive Industries Limited v ICICI Bank & Anr [7] that IBC is a comprehensive code which implies that it is independent of other laws. Now even though there was no provision in IBC that expressly barred the Limitation Act, the court observed that it remains open for the court to conclude so on a meaningful and comprehensive reading of the provisions. This view was further supported by M/S. Speculum Plast Pvt. Ltd. v Ptc Techno Pvt. Ltd[8]. and B.K. Educational Services Private Limited v Parag Gupta.[9] Even so, acting cautiously, the courts prescribed that the underlying utility of the doctrines like that of limitation must not be forsaken and it must be ensured that a deliberate delay does not go unpunished.
Undoubtedly, the above ruling was bound to result in an increase in the number of applications and appeals. In the above background the Report of the Insolvency Law Committee of March 2018[10] came in which opined that “since the intent of the Code was not to array 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”.
The legislature finally taking note of this situation came up with Section 238A inserted vide an amendment[11] which clearly provided that the Limitation Act would apply to all the proceedings or appeals before the NCLT, NCLAT, DRT and DRAT.
3. Post Amendment
3.1 Prospective/ Retrospective i.e. explanation of existing law or codification of new law
Thus, even after the amendment, the law prior to 01.12.2016 remained to be analysed to understand as to whether the amendment was explanatory in which case it will have retrospective operation or whether it was creating a new norm, in which case its operation depended on the intention of legislature.
B.K. Educational Services Private Limited v Parag Gupta and Associates[12] took up the contention that Section 238A being procedural in nature is only clarificatory and so must be interpreted to be retrospective in operation. The SC took note of a number of factors to come to the conclusion that the expression “debt due” necessarily mean those debts which are “due and payable” in law which by implication means debts not barred by time or otherwise. This gets support from similar interpretation of “actually due and payable” under Sections 60 and 61 of the Indian Contract Act.
Noting the Allied Motors (P) Limited v CIT[13] the court was of the opinion that the amendment will fail to serve its purpose if it is not construed to be retrospective. Additionally, taking help of Andhra Pradesh Power Coordination Committee & Ors. v Lanco Kondapalli Power Limited & Ors[14] it observed: “legislature did not contemplate enabling a creditor who has allowed the period of limitation to set in and allow such delayed claims through the mechanism of the Code.” If allowed the result that will follow would be absurd which will “allow the Code to be triggered by a stale or dead claim leading to the drastic consequence of instantly removing of the present Board of Directors of the corporate debtor permanently, which may ultimately lead to liquidation”. It also observed that even if the provisions of the statue are seen, the same conclusion would be drawn. For instance, Section 60(6) of the Code will be unnecessary if Limitation Act is interpreted to be excluded.
Additionally and not alternatively, the SC noted Thirumalai Chemicals Limited v Union of India[15] to finally conclude that “limitation being procedural in nature would ordinarily be applied retrospectively, save and except the fact that any amendment to the existing law and/or a new law cannot revive a dead remedy”. This latter part is important for the next heading.
3.2 Section 18 of the Limitation Act: Revival of time barred debts
Section 18 of the Limitation Act provides that on a written acknowledgement of a debr before the expiry of prescribed limitation period results in initiation of a fresh period of limitation which is to be computed from the time such acknowledgement. Also we know from the discussion above that the new section has been held to be clarificatory by the Supreme Court and it is applicable retrospectively given that the intent of the Code is not to revive time-barred debts. So, the question arose as to whether Section 18 of IBC is applicable to IBC in accordance with the above ruling of the apex court.
August 2020, the SC took up the matter in Babulal Vardharji Gurjar v Veer Gurjar Aluminium Industries Pvt. Ltd.[16] and clarified that Section 18 is out of the purview of any action under IBC noting that the reason for insertion of Section 248A was to eliminate resurrection of time-barred debts.
What followed later was a number of conflicting judgments. For instance, in Jagdish Prasad Sarada v Allahabad Bank[17], NCLT relied on Babulal to hold that the date of default cannot ‘shift’ on account of an acknowledgment. In Yogesh Kumar Jashwantlal Thakkar v Indian Overseas Bank[18], NCLT distinguishing the facts of the two cases went ahead and upheld the application of Section 18 to IBC. Later, in Bishal Jaiswal v Asset Reconstruction Company[19] Section 18 was held to be not applicable to proceedings under the IBC.
However it seems now that some finality is achieved by the judgments passed in March 2021. Particularly, in Sesh Nath Singh v Baidyabati Sheoraphuli Co-operative Bank[20] it was held that IBC does not exclude the application any of the provisions of Limitation Act.3 Similar was the reasoning in the case of Laxmi Pat Surana v Union Bank of India[21] which observed that the case of Babulal Vardharji[22], has not ruled out applicability of Section 18 of the Limitation Act and that “there is no reason to exclude the effect of Section 18 of the Limitation Act to the proceedings initiated under the IBC”. The Court examined various provisions of the Companies Act, 2013[23] & numerous judgments[24] to come to this conclusion. The SC reiterated that the intent of the IBC was never to revive debts barred by time. Now, accrual of fresh period of limitation as per Section 18 is provided by law and hence will not be a case of giving new lease to time-barred debts.
The final decision came in April 2021, in Asset Reconstruction Company (India) Limited v Bishal Jaiswal & Anr[25]. It again noted that the reason for insertion of Section 248A was to eliminate the revival of time-barred debts. However, due to the same amendment Section 9 of the Limitation Act shall also apply which provides that when time begins to run it cannot be halted except by a process known to law. It noted the case laws it decided earlier this year as discussed above to finally uphold the application of Section 18 of the Limitation Act to IBC.
[1] The Sick Industrial Companies (Special Provisions) Act, Act No. 1 Of 1986
[2] The Insolvency And Bankruptcy Code, Act No 31 Of 2016
[3] The Limitation Act, Act No. 36 Of 1963
[4] 2017 SCC OnLine NCLAT 70
[5] Hukumdev Narain Yadav vs. Lalit Narain Mishra AIR 1974 SC 480, Patel Brothers vs. State of Assam and Ors. AIR 2017 SC 383,
[6] 2017 SCC OnLine SC 1984
[7] 2017 SCC OnLine NCLAT 70
[8]], 2017 SCC OnLine NCLAT 319
[9], AIR 2018 SC 5601 / (2019) 11 SCC 633 (SC)
[10] Report Of The Insolvency Law Committee, 26 March, 2018, Ministry Of Corporate Affairs, Government Of India
[11] The Insolvency And Bankruptcy Code (Second Amendment) Act, No. 26 Of 2018
[12] AIR 2018 SC 5601 / (2019) 11 SCC 633 (SC)
[13] (1997) 3 SCC 472
[14] (2016) 3 SCC 468
[15] (2011) 6 SCC 739
[16] 2020 SCC OnLine SC 647
[17] 2020 SCC OnLine NCLAT 621,
[18] Company Appeal (AT) (Insolvency) No. 236 of 2020
[19] 2020 SCC Online NCLAT 681
[20] 2021 SCC OnLine SC 244
[21] 2021 SCC OnLine SC 267
[22] (2019) 15 SCC 209
[23] The Companies Act, Act No. 18 Of 2013
[24] Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Private Limited (I) (2019) 15 SCC 209, B.K. Educational Services Private Limited v. Parag Gupta and Associates (2019) 11 SCC 633, Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Limited (2019) 10 SCC 572, Vashdeo R. Bhojwani v. Abhyudaya Co-operative Bank Limited (2019) 9 SCC 158 and Sagar Sharma v. Phoenix Arc Private Limited (2019) 10 SCC 353
[25] 2021 SCC OnLine SC 321
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