The National Company Law Appellant Tribunal (NCLAT) in the recent judgment Bimalkumar Manubhai Savalia Vs. Bank of India held that part payment by guarantor will not extend the limitation period under Insolvency Bankruptcy Code (IBC or Code) (i.e. three years). NCLAT critically examined the relevance and applicability of Limitation Act, 1963 (“Limitation Act”) on Code, for which NCLAT place its reliance on the landmark judgement of Hon’ble Supreme Court in B.K. Educational Services Pvt. Ltd. Vs. Parag Gupta & Associates passed in Civil Appeal No. 23988 of 2017 reported in (2019) 11 SCC 633, wherein Apex Court discuss in detail the applicability of provision of Limitation Act on Code and held that Article 137 of Limitation Act, will be applicable on the Code.

That the Appeal was preferred by Shareholder and Director of Corporate Debtor taking the stand that the application filed by Financial Creditor is time barred. To which the Respondent to the Appeal (i.e. Financial Creditor) replied that date of default was mentioned in statutory form-1, as per the rules, shown as 05.11.2014. The Application under Section 7 of the Code was filed before the Adjudicating Authority on 30.08.2018 is within limitation period for the reason that the Corporate Debtor issued a letter dated 28.04.2016 and the second letter on 01.06.2016 with regard to the One Time Settlement (“OTS”). Treating the said letter as acknowledgment of the financial debt by the Corporate Debtor, Financial Creditor moved said application under Section 7. Further Guarantor to the said financial debt paid the amount of Rs. 1,26,619/- and Rs. 1,28,645/- by transferring the same to the account of the Corporate Debtor on 01.04.2017. In the view of the Guarantee Deed the transfer of amount can be treated as acknowledgment of Debt for the purpose of Limitation. On this ground the Financial Creditor submitted that the application filed on 30.08.2018 is within the Limitation period and his claim can not be regarded as time barred debt.  That the Corporate Debtor defaulted in making payment and therefore the Securitization and Reconstruction of Financial Assets and Enforcement of Securities Interest Act, 2002 (in short ‘SARFAESI’) and Debt Recovery Tribunal (in short ‘DRT’) started in 2017. The Adjudicating Authority, by observing above, held that the Application is within limitation taking into account the OTS proposal dated 01.06.2016 and the amounts which have come from the Guarantor into the loan account of the Financial Creditor on 31.03.2017. 

NCLAT opined that SARFAESI and DRT proceeding will not extent the period of limitation since those proceedings are independent and as per Section 238 of IBC, the Insolvency and Bankruptcy Code is a complete Code and will have overriding effect on other laws. As per provision of Section 238 of Insolvency Bankruptcy code, 2016 reiterated herein;

“The provisions of this Code shall have effect, notwithstanding anything inconsistent therewith contained in any other law for the time being in force or any instrument having effect by virtue of any such law”  

NCLAT held that Code is complete in itself and therefore it governed by its own provisioning defined or specified under the code. The proceedings initiated or to be initiated under DRT or SARFASI Act has no connection of relation with the Application filed under the Code as the Code is separate and independent in itself and therefore it is held that DRT or SARFASI proceedings shall have no per se effect IBC Application and will be extend the limitation period.

Further the NCLAT while considering the issue relating to effect of part payment on the limitation period, relied upon B.K. Educational Services Pvt. Ltd. Vs. Parag Gupta & Associates Supra wherein it was held that:

“Limitation Act is applicable to applications filed under Sections 7 and 9 of the Code from the inception of the Code, Article 137 of the Limitation Act gets attracted. “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.” 

That the NCLAT while considering the Section 19 of the Limitation Act vis-a-cis its application on the Code. In the light of B.K. Educational Services Pvt. Ltd. Vs. Parag Gupta & Associates Supra NCLAT held that Article Section 19 of the Limitation Act will fall under the category of first division of schedule which applies to the suits. However, Section 7 of the Code is not a suit and as held by Hon’ble Supreme Court, Section 7 is an Application under the Code which falls under the category of Application in para II of 3rd division. Therefore, the stand of the Financial Creditor, that the period of limitation will get extended from the date of payment of amount by the Guarantor on 01.04.2017 cannot be a ground and the limitation will not get extended.

NCLAT also held that OTS was not accepted by the Financial Creditor, therefore, the same cannot be treated as an acknowledgement in view of Section 18 of the Limitation Act, 1963. From the records it is seen that the Appellant also made OTS Proposal on 28.04.2016 prior to the OTS Proposal i.e., 01.06.2016.

Author is Law Student.

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Qualification: Student - CA/CS/CMA
Company: Securitas India
Location: New Delhi, New Delhi, IN
Member Since: 14 Mar 2020 | Total Posts: 4
Ms. Ankita Mullick is a paralegal and aspirant Company Secretary core competence and experience in Corporate Litigation including insolvency Bankruptcy Code, Mergers Amalgamation, Corporate Restructuring including other litigation matters involving representation before NCLT, High Court and Supreme View Full Profile

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May 2021