EzResolve
banner 2-01.png

blog

Is Limitation Act, 1963 applicable petitions filed under Insolvency and Bankruptcy Code (IBC), 2016

1. Period of Limitation under Limitation Act, 1963

(a) As per section 2(j) of Limitation Act, 1963:

- “period of limitation” means the period of limitation prescribed for any suit, appeal or application by the Schedule, and

- “prescribed period” means the period of limitation computed in accordance with the provisions of this Act

(b) As per Section 3(1) of Limitation Act,1963:

“Subject to the provisions contained in sections 4 to 24 (inclusive), every suit instituted, appeal preferred, and application made after the prescribed period shall be dismissed, although limitation as not been set up as a defence”

(c) There is a Schedule on Periods of Limitation, under Limitation Act, 1963 basing on the description of suit. The time from which the period begins to start is also clearly specified in the Schedule. It has three divisions with 137 descriptions of suits.  Based on the description of suit, the time from which the limitation period begins varies from suit to suit. Further, period of limitation also differs starting from 10 days to 30 years.  

(d) The petition by a financial creditor may fall under Part – II of division I, the period of limitation is 3 years and in case of money lent, limitation period starts from the time when the loan is made.  Similarly for an operational creditor, his limitation period may be 3 years and limitation runs from the time of completion of services. Thus the period of limitation and when it runs purely depends on the suit.

(e) The intention of Limitation Act, 1963, is to compel the applicant to take remedy in court of law within the periods of limitation.

 

2. Applicability of Limitation Act, 1963 to IBC, 2016

(a) Applicability of Limitation Act, 1963 :

As per section 3 of Limitation Act, 1963, the bar of limitation is for every suit instituted, appeal preferred, and application made. The applications filed with NCLT by / against Corporate Debtor are also covered under section 3 of Limitation Act, 1963. The period of limitation and the time it starts shall vary basing on the description of the case.  

The applicability of Limitation Act, 1963 to IBC Cases, shall be as per the provisions of the Limitation Act and/or the Schedule to it.

(b) Provisions under IBC, 2016 and Companies Act, 2013:

Further, under IBC, 2016 at Section 60 and 179, reference is made to the Limitation Act, 1963, wherein it says that moratorium period is to be excluded while computing period of limitation. 

We also need to look at Section 433 of Companies Act, 2013 - Limitation.— “The provisions of the Limitation Act, 1963 (36 of 1963) shall, as far as may be, apply to proceedings or appeals before the Tribunal or the Appellate Tribunal, as the case may be”.

However, there is a provision in IBC, 2016 which enables the Code to override the other laws. Section 238: “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.” 

(c) By virtue of above referred section 238, there is a possibility that at times IBC may override the limitation period considering the objective of the IBC – time bound manner for maximisation of assets of CD, to promote entrepreneurship, availability of credit, to balance the interests of all the stakeholders.


Relevant Case Laws

1. Neelkanth Township and Construction Private Limited Vs. Urban Infrastructure Trustee Limited

In this case the Neelkanth (the Appellant) filed an appeal with NCLAT against the order passed by the NCLT, Mumbai Bench.  The Appellant, inter alia contended that application filed by Urban Infrastructure (the Respondent) under Section 7 of IBC, 2016 is time barred under Limitation Act, 1963.

NCLAT dismissed the appeal on the following grounds:-

  • Rules of procedure must be construed so as not to frustrate or obstruct the process of adjudication under the substantive provision of law.

  • In case there exists debt having a continuous course of action, the argument that such debt is barred by limitation cannot be accepted.

  • There was nothing on record that the Limitation Act, 1963 is applicable to IBC

 

2. M/s. Deem Roll-Tech Limited v. M/s. R.L. Steel & Energy Ltd.[ (Principle Bench)

Principal Bench had taken a view that the period of limitation would be applicable as the claim made by the Operational Creditor was barred by limitation and was being made after the expiry of period of 3 (Three) years.  The debt as claimed by the petitioner is barred by limitation and hence cannot be the basis for invoking IBC before the Tribunal.

 

3. Sanjay Bagrodia v. Sathyam Green Power Pvt. Ltd (Principle Bench)

Bench held that limitation period is applicable.

Explaining the non-obstante nature of section 238 of the Code, the bench observed as follows:

"The other argument based on Section 238 of IBC would also not advance the case of the applicant because Section 238 only postulates that if there is any conflict between the provisions of IBC and any other existing law then IBC would prevail. It is obviously a non-obstante clause. Nothing has been pointed out to us to highlight any conflict so as to attract the application under Section 238 of the IBC."

"The simple result flowing from the plain reading of Section 60(6) IBC is that the claim made before the NCLT must also be within the period of limitation as prescribed by the Limitation Act, 1963."

 

4. Black Pearl Hotels Pvt. Ltd. Vs. Planet M Retail Ltd (Mumbai Bench)

The NCLAT ruled that even if it is accepted that the Limitation Act, 1963 is applicable for initiation of Corporate Insolvency Resolution Process, in such case Article 137 of the Limitation Act, 1963 will be applicable where the period of limitation is three years and it begins when the right to apply accrues.

NCLAT in its order states that “Insolvency and Bankruptcy Code, 2016 has come into force with effect from 1st December, 2016. Therefore, the right to apply under I&B Code accrues only on or after 1st December, 2016 and not before the said date.

NCLAT, Mumbai passed its above referred order on 17th October, 2017.

 

Conclusion

Considering the provisions of Section 60 and 179 IBC, 2016 and Section 433 of the Companies Act, 2017, Limitation Act, 1963 is very much applicable to the petitions filed under the provisions of IBC, 2016. The period of limitation and the period from when it starts shall be based on the description of the suit, as per the provisions of Limitation Act, 1963 and the Schedule thereto.  

The view of NCLAT in their order in the case - Black Pearl Hotels Pvt. Ltd. Vs. Planet M Retail Ltd, that, right to apply under I&B Code accrues on or after 1st December, 2016, is applicable to similar cases and not all the cases.

We should note that Limitation Act, 1963 is applicable to cases under IBC, 2016, though there is a possibility of passing the order by Adjudicating Authority considering section 238 of IBC, 2016.