SC dismisses IL&FS Petition against La-Fin on being time-barred

Jignesh Shah & Anr. Vs Union of India & Anr. (Supreme Court of India)

SC dismisses IL&FS Petition against La-Fin on being time-barred as trigger of limitation for winding up petition was date of default

Conclusion: Winding up petition filed in October 2016 by IL&FS Financial Services Ltd. against La-Fin before the Bombay High Court which was transferred to the NCLT with respect to the alleged default by La-Fin in not complying with its undertaking to buy back 442 lakh equity shares of MCX-SX (a group company of La-Fin) from IL&FS  in August 2012 was time-barred being beyond the period of three-years mentioned in Article 137 of the Limitation Act and could not therefore be proceeded with any further.

Held: Shareholders of La-Fin Financial Services Pvt. Ltd. had filed a petition assailing the order of the NCLT admitting a winding up petition that was filed by IL&FS Financial Services Ltd. against La-Fin before the Bombay High Court, which was transferred to the NCLT and then heard as a Section 7 application under the Insolvency and Bankruptcy Code, 2016. The petition pertained to an alleged default by La-Fin to comply with its undertaking to buy back 442 lakh equity shares of MCX-SX (a group company of La-Fin) from IL&FS. IL&FS had purchased those shares in 2009. The cut-off date for the undertaking of La-Fin was August 2012. La-Fin was contending that the winding up petition filed in October 2016 with respect to the alleged default which had occurred in August 2012 was time-barred. It was held that a winding up proceeding was a proceeding ‘in rem’ and not a recovery proceeding. The trigger for limitation is the inability of a company to pay its debts. Undoubtedly, this trigger occurs when a default takes place, after which the debt remains outstanding and is not paid. It is this date alone that is relevant for the purpose of triggering limitation for the filing of a winding up petition.Questions as to commercial solvency arose in cases covered by Sections 434(1) (c) of the Companies Act, 1956, where the debt had first to be proved, after which Court would look to the wishes of the other creditors and commercial solvency of the company as a whole. The stage at which Court therefore, examined whether the company was commercially insolvent is once it begins to hear the winding up petition for admission on merits. Limitation attaches insofar as petitions filed under Section 433(e) are concerned at the stage that default occurs for, it is at this stage that the debt becomes payable. Thus, the cause of action for the purposes of limitation would not include the commercial insolvency or the loss of substratum of the company. Winding up Petition filed on 21^stOctober, 2016 being beyond the period of three-years mentioned in Article 137 of the Limitation Act was time-barred, and could not therefore be proceeded with any further.

FULL TEXT OF THE SUPREME COURT JUDGMENT

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