Is Limitation Act, 1963 applicable to the claims submitted during CIRP?
With the introduction Section 238A of Insolvency and Bankruptcy Code, 2016, with effect from 6th June, 2018, it was made very clear that the provisions of Limitation Act, 1963 are applicable to the proceedings or appeals before the Adjudicating Authority, i.e., Period of limitation is to be considered for filing the petition to initiate Corporate Insolvency Resolution Process against the Corporate Debtor.
However, a cloud of doubt still pervades, whether the Limitation Act, 1963, applies even to the claim submission by the operational creditors or financial creditors, to the Resolution Professional during the corporate insolvency resolution process.
This attempt is to understand the Law and intention of law makers, on the applicability of the Limitation Act, 1963 for the claim submission during the CIRP.
(a) According to Section 3 of Limitation Act, 1963, every suit instituted, appeal preferred and application made, after the prescribed period shall be dismissed, i.e., such suits cannot be entertained after the period of limitation
(b) 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 of the Act.
(c) Further, as per section 3(2)(a)(iii) suit is instituted in the case of a claim against a company which is being wound up by the court, when the claimant first sends in this claim to the official liquidator.
Point no.(c) is very clear that period of limitation is applicable to claims submitted by creditors, either operational or financial, to Liquidator. Can we say that because the Limitation Act, 1963 is not referring to the submission of claims during CIRP, period of limitation is applicable only to the claims to be submitted at liquidation and not during CIRP?
Prominent Supreme Court cases on period of limitation:
In the case of Rajender Singh & Ors vs Santa Singh & Ors 1974 SCR (1) 381, the Supreme Court of India has held that “The object of the law of limitation is to prevent disturbance or deprivation of what may have been acquired in equity and justice by long enjoyment or what may have been lost by a party’s own inaction, negligence or latches.”
In another case, Punjab National Bank And Ors vs Surendra Prasad Sinha on 20 April, 1992, the supreme court of India held that - “The rules of limitation are not meant to destroy the rights of the parties. Section 3 of the Limitation Act only bars the remedy, but does not destroy the right which the remedy relates to. The right to the debt continues to exist notwithstanding the remedy is barred by the limitation. Only exception in which the remedy also becomes barred by limitation is the right is destroyed.
Though the right to enforce the debt by judicial process is barred, the right to debt remains. The time barred debt does not cease to exist by reason of s.3.That right can be exercised in any other manner than by means of a suit. The debt is not extinguished, but the remedy to enforce the liability is destroyed What s.3. refers is only to the remedy but not to the right of the creditors. Such debt continues to subsists so long as it is not paid. It is not obligatory to file a suit to recover the debt.
Though the remedy to recover the debt from the principal debtor is barred by limitation, the liability still subsists”
The above indicates that though remedy to recover is restricted by period of limitation, but the liability still exists till it is paid.
If we further, look into the Sec.238A of IBC introduced with effect from 6th June, 2018, which is as below:
“238A. Limitation. – The provisions of the Limitation Act, 1963 (36 of 1963) shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority, the National Company Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, as the case may be”
- its referring to only proceedings or appeals before AA. It does not refer to the claims submitted during the CIRP or Liquidation.
By considering, the Supreme Court judgement in Punjab National Bank And Ors vs Surendra Prasad Sinha and the section 238A of IBC, the claims submitted by operation or financial creditors, during CIRP should not come under the purview of Limitation Act, 1963.