Article 62 of the Limitation Act, 1963 (Limitation Act) prescribes limitation period in case of equitable mortgage i.e. 12 years. Recently a pertinent question arose before National Company Law Appellate Tribunal (NCLAT) in the matter of Mr. Harsubhai P. Lakkad Vs. Bank of Baroda Company Appeal (AT) (Insolvency) No. 32 of 2020 order dated 12.03.2020 i.e. what would be limitation period under Insolvency Bankruptcy Code, 2016 of India (IBC or Code) in cases of equitable mortgage created by the creditor against the Corporate Debtor so as to secure its debt (Moot Question). NCLAT while decoding it deliberated on various judgments passed by itself and by Hon’ble Supreme Court of India.

In this article we will be discussing ths Moot Question and the NCLAT findings on the same.

FACTS OF THE CASE:

That the Appeal was preferred by an ex-Director of M/s. Sunrise Ginning Private Limited Kalpataru Cold Storage Pvt. Ltd. (“Corporate Debtor”) taking the stand that the application filed before Adjudicating Authority, Ahmedabad Bench (“NCLT” or “Adjudicating Authority”) by Bank of Baroda (erstwhile Dena Bank) (“Financial Creditor”) was time barred and challenged the order dated 20.11.2019 (“Impugned Order”).

As per Application filed by the Financial Creditor in the year 2012 Financial Creditor had sanctioned cash credit hypothecation facility to the Corporate Debtor to the tune of INR 9,00,00,000/- (Indian Rupees Nine Crores). As per Application filed by the Financial Creditor before Adjudicating Authority date of default of debt was 01.06.2015 and the same was declared NPA on 28.10.2015 and consequently the said Application was filed on 19.10.2018.

Adjudicating Authority while admitting the petition noted that mortgage/charges on the asset of the Corporate Debtor were created in 2012. Further, as per Article 62 of the Limitation Act, in cases of mortgage/charges period of limitation is 12 years. Therefore, Adjudicating Authority held that petition filed in 2018 was within the limitation period.

SUBMISSIONS OF THE PARTIES :

Appellant argued that, Financial Creditor had filed the Application under Section 7 of the IBC before the Adjudicating Authority on 19.10.2018 after the limitation period of 3 years as the default occurred on 01.06.2015.

However Financial Creditor submitted that the claim is not barred by limitation. As muchbefore filing of Insolvency Proceedings banker has moved under SARFAESI Act and thereafter Financial Creditor also moved to Debt Recovery Tribunal, Delhi (“DRT”) for recovery of its dues on 08.3.2016. Therefore the Limitations period has to start from there for calculation of period of limitation thus, Limitation should again start. Further, as equitable mortgage was created as collateral security. Therefore, Article 62 of the Limitation Act, 1963 would apply instead Article 137. Therefore limitation period is 12 years and not 3 years and hence claim of Financial Creditor was not time barred. Financial Creditor also relied on A. Maheshwaran v. Stressed Assets Stabilization Fund & Anr.− IV (2019) BC 171 (NCLAT).

FINDING

NCLAT, referred various judgments of Hon’ble Supreme Court namely, B.K. Educational Services Private Limited Vs. Parag Gupta and Associates (2019) 11 Supreme Court Cases 633 wherein it was held that Article 137 of the Limitation Act, 1963 would be applicable in the cases of Section 7, 9 and 10 of the IBC. Further NCLAT also referred Jignesh Shah and another vs. Union of India and another – (2019) 10 SCC 750 wherein it was held that filing of winding up proceedings under Companies Act, 1956 was independent from the suit or recovery proceedings filed by the Bank before Debt Recovery Proceedings. Hence filing of suit or recovery proceedings will not revive the period of limitation or extend the same.

Thereafter, NCLAT also referred another judgment of Hon’ble Supreme Court in the matter of Gaurav Hargovindhai Dave vs. Asset Reconstructions Company (India) Limited and another – (2019) 10 SCC 572 relevant extract of the same is reproduced herein below:

“An independent proceeding was then begun by Respondent 1 on 3-10-2017 being 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 now amounted to about 124 crores of rupees. In 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. 21-7-2011 was filled up. The NCLT applied Article 62 of the Limitation Act which reads as follows: 

Description of suit Period of Limitation Time from which period begins to run
62. To enforce payment of money secured by a mortgage or otherwise charged upon immovable property Twelve Years When the money sued becomes due.

Applying the aforesaid Article, the NCLT reached the conclusion that since the limitation period was 12 years from the date on which the money suit has become due, the aforesaid claim was filed within limitation and hence admitted the Section 7 application. The NCLAT vide the impugned judgment held, following its earlier judgments, that the time of limitation would begin running for the purposes of limitation only on and from 1-12-2016 which is the date on which the Insolvency and Bankruptcy Code was brought into force. Consequently, it dismissed the appeal.

***

6. Having heard the learned counsel for both sides, what is apparent is 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. As rightly pointed out by the learned counsel appearing on behalf of the appellant, time, therefore, begins to run on 21-7-2011, as a result of which the application filed under Section 7 would clearly be time-barred. So far as Mr Banerjee’s reliance on para 11 of B.K. Educational Services (P) Ltd., suffice it to say that the Report of the Insolvency Law Committee itself stated that the intent of the Code could not have been to give a new lease of life to debts which are already time-barred.

7. This being the case, we fail to see how this para could possibly help the case of the respondents. Further, 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 – judgments have stated that often time periods provided by the Limitation Act can be arbitrary in nature.

8. This being the case, the appeal is allowed and the judgments of the NCLT and NCLAT are set aside.”

In view of the above, NCLAT held that for triggering application under Section 7 the date of default is to be noticed for counting the period of limitation under Article 137 of the Limitation Act.

Later, NCLAT examined the fact of the case in the light of the aforesaid law, and noted that as per Application of financial creditor under FORM 1 default has been shown as 28.10.2015 i.e. the date of NPA. Further to ascertain the exact date of default, NCLAT went deep and referred Application filed before DRT by the Financial Creditor in 2016, wherein NPA date was mentioned as 03.9.2014.

ORDER

NCLAT declined to accept the stand of the Financial Creditor that, Article 62 of the Limitation Act, will be applicable for counting limitation under Section 7 of the IBC and further held that only Article 137 of the Limitation will be applicable on the Application under Section 7, 9 and 10 of the IBC.

NCLAT held that the application under Section 7 has not been filed within three years from the date of default/ NPA having being declared before 3.09.2014 as pleaded before DRT. Thus, Application under Section 7 being barred by Limitation and was not maintainable.

In the light of aforesaid NCLAT set aside the Impugned Order of the Adjudicating Authority.

ANALYSIS

It is interesting to note that, prior to present Judgment NCLAT have had held in A. Maheshwaran v. Stressed Assets Stabilization Fund & Anr. IV (2019) BC 171 (NCLAT) that, in cases of mortgage created on property of the Corporate Debtor limitation period would be 12 years in terms of Article 62 of Part V of First Division of the Schedule of the Limitation Act.

Later on Hon’ble Supreme Court in Gaurav Hargovindhai (Supra) reversed said proposition and held that only Article 137, a residuary article, is the sole Article to be applied while calculating limitation period in the proceedings under Section 7, 9 or 10 of the IBC. In the light of the same the present Judgment has been passed. Thus, even in cases of mortgage or charge, limitation period is three years and not 12 years.

Present Judgment is in line with various other Judgment of the NCLAT, which we have discussed in previous Moot Questions as well, wherein NCLAT has directed that, only Article 137 of the Limitation Act, is the only article to be referred in cases of IBC while counting limitation period.

Author is advocate at New Delhi being Managing Partner at Indo Legal Services a boutique law firm in New Delhi.

Disclaimer

This article is for information purposes only. Nothing contained herein is, purports to be, or is intended as legal advice and you should seek legal advice before you act on any information or view expressed herein. Although we have endeavored to accurately reflect the subject matter of this article, we make no representation or warranty, express or implied, in any manner whatsoever in connection with the contents of this article.

No recipient or reader of this article should construe it as an attempt to solicit business in any manner whatsoever.

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Qualification: LL.B / Advocate
Company: INDO LEGAL SERVICES LLP
Location: Delhi, New Delhi, IN
Member Since: 04 May 2020 | Total Posts: 5
Indo Legal Services is a Delhi based boutique Law firm having core competence and extensive hands on experience in diverse areas including corporate-commercial litigation, mergers and acquisitions, corporate restructuring, reduction and alteration of share capital, insolvency & bankruptcy, share View Full Profile

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