Time & again Hon’ble SCI has held that applications under section 7 & 9 of the “Code” are not “suit” for recovery of debt, hence attracts the provisions of Article 137 of the schedule of “The Limitation Act, 1963”.
1. Hon’ble SCI (11.10.2018) in B.K. Educational Services Pvt. Ltd Vs Parag Gupta and Associates ( Civil Appeal no. 23988 of 2017) held that; a). Limitation Act is applicable from the inception of the Code. b). Article 137 of the Limitation Act gets attracted for applications filed under Sections 7 and 9 of the Code. c). “The right to sue”, therefore, accrues when a default occurs.
# 27. It is thus clear that since the 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
Author’s Comments; In the above judgement Hon’ble SCI laid down the following law.
i). The 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.
ii). Section 5 of the Limitation Act may be applied to condone the delay in filing such application
2. Hon’ble SCI (18.09.2019) in Gaurav Hargovindbhai Dave Vs. Asset Reconstruction Company (I) Ltd [ Civil appeal 4952 of 2019], held that;
# 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.
3. Hon’ble SCI (30.09.2019) in Sagar Sharma & Anr.Vs. Phoenix Arc Pvt. Ltd. & Anr. (Civil Appeal No.. 7673 of 2019) held that;
# 2 …………… We may point out that an application under Section 7 of the Code does not purport to be an application to enforce any mortgage liability. It is an application made by a financial creditor stating that a default, as defined under the Code, has been made, which default amounts to Rs. 1,00,000/- (one lakh) or more which then triggers the application of the Code on settled principles that have been laid down by several judgments of this Court.
# 7) Mr. Rakesh Dwivedi, learned Senior Counsel, wishes to raise a plea based on Section 22 of the Limitation Act before the NCLAT. We record this statement.
Author’s Comments; In this judgement Hon’ble SCI permitted the applicant to examine the delay in filing of the application under the provisions of section 22 of The Limitation Act., whereas in B.K. Educational Services Pvt. Ltd Vs Parag Gupta and Associates (Civil Appeal no. 23988 of 2017), examination of delay in filing of the application was restricted to the provisions of section 5 of The Limitation Act.
4. Hon’ble SCI (2020.08.14) Babulal Vardarji Gurjar Vs. Veer Gurjar Aluminium Industries (Civil Appeal No. 6347 OF 2019) reiterated the ratio laid down in the case of B.K. Educational Services.
# 32 ……….It is difficult to read the observations in the aforesaid paragraph 21 of Jignesh Shah to mean that the ratio of B.K. Educational Services has, in any manner, been altered by this Court. As noticed, in B.K. Educational Services, it has been clearly held that the limitation period for application under Section 7 of the Code is three years as provided by Article 137 of the Limitation Act, which commences from the date of default and is extendable only by application of Section 5 of Limitation Act, if any case for condonation of delay is made out.The findings in paragraph 12 in Jignesh Shah makes it clear that the Court indeed applied the principles so stated in B.K. Educational Services,
Now let’s look into some of the provisions of the “The Limitation Act, 1963.
# Section 2. Definitions.—In this Act, unless the context otherwise requires,-
(j) “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;
# Section 3. Bar of limitation.-
(1) 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 has not been set up as a defence.
Section 29. Saving -
(2) Where any special or local law prescribes for any suit, appeal or application a period of limitation different from the period prescribed by the Schedule, the provisions of section 3 shall apply as if such period were the period prescribed by the Schedule and for the purpose of determining any period of limitation prescribed for any suit, appeal or application by any special or local law, the provisions contained in sections 4 to 24 (inclusive) shall apply only in so far as, and to the extent to which, they are not expressly excluded by such special or local law.
It is important to note that Code does not expressly exclude the provision of section 4 to 24 of The Limitation Act. for condonation of delay / extension of limitation for applications under section 7 & 9 of the Code.
Constitution of India & The Doctrine of “Per Incuriam”. SCI-Case Law
As per Article 141 of The Constitution of India, the law laid down by the Hon’ble Supreme Court of India is binding on all courts in India.
# Article 141. The law declared by the Supreme Court shall be binding on all courts within the territory of India.
In the normal course all decisions of a High Court would be binding on a District Court or a Tribunal which is subject to supervisory jurisdiction of a particular High Court and the decisions of the Supreme Court are considered the law of the land.
When a High Court or Supreme Court is faced with a judgement cited before it, there are certain rules for maintaining uniformity in law and of precedents commonly known as the principle of stare decisis.
The following is the practice usually adopted:
i). The law laid down by a Bench of larger strength is binding on any subsequent Bench of lesser or co-equal strength.
ii). A Bench of lesser quorum cannot disagree or dissent from the view of the law taken by a Bench of larger quorum. In case of doubt all that the Bench of lesser quorum can do is to invite the attention of the Chief Justice and request for the matter being placed for hearing before a Bench of larger quorum than the Bench whose decision has come up for consideration. It will be open only for a Bench of co-equal strength to express an opinion doubting the correctness of the view taken by the earlier Bench of co-equal strength, whereupon the matter may be placed for hearing before a Bench consisting of a quorum larger than the one which pronounced the decision laying down the law the correctness of which is doubted.
5. Constitution Bench of Hon’ble SCI in Union of India v. Raghubir Singh [(1989) 2 SCC 754], observed as under:
"The doctrine of binding precedent has the merit of promoting certainty and consistency in judicial decisions, and enables an organic development of the law, besides providing assurance to the individual as to the consequence of transactions forming part of his daily affairs. And, therefore, the need for a clear and consistent enunciation of legal principle in the decisions of a court."
The Doctrine of “Per Incuriam”.
6. Hon’ble SCI in Government of A.P. and Another v. B. Satyanarayana Rao (dead) by LRs. and Others [(2000) 4 SCC 262], observed as under:
"The rule of per incuriam can be applied where a court omits to consider a binding precedent of the same court or the superior court rendered on the same issue or where a court omits to consider any statute while deciding that issue."
Important SCI judgement on Limitation & right to debt.
7. Hon’ble SCI (20.04.1992) Punjab National Bank And Ors vs Surendra Prasad Sinha (Criminal Appeal No. 254 of 1992.) on impact of expiry of limitation,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 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."
Disclaimer: The sole purpose of this blog is to create awareness on the subject and must not be used as a guide for taking or recommending any action or decision. A reader must do his own research and seek professional advice if he intends to take any action or decision in the matters covered in this blog.
Blog edited on 18th Aug. 2020.
NCLAT vide it's decision dated 14.09.2020, has added a new dimensions to the issue.
ReplyDeleteNCLAT (2020.09.14) in Yogesh Kumar Jashvantlal Thakkar Suspended Director Vs Indian Overseas Bank,[Company Appeal (AT) (Insolvency) No. 236 of 2020] had allowed extension of limitation in insolvency application under section 7 of the Code, on the basis of ack. of debt under section 18 of the limitation act.
# 37. For better and fuller appreciation of the present subject matter in issue, it is useful for this Tribunal to make a pertinent reference to Section 18 of the Limitation Act, 1963 which runs as under:
# Section 18. Effect of acknowledgment in writing.—
(1) Where, before the expiration of the prescribed period for a suit or application in respect of any property or right, an acknowledgment of liability in respect of such property or right has been made in writing signed by the party against whom such property or right is claimed, or by any person through whom he derives his title or liability, a fresh period of limitation shall be computed from the time when the acknowledgment was so signed.
# 38 ......Furthermore, in view of the fact, that ingredients of Section 18 of the Limitation Act, 1963 are quite applicable both for ‘Suit’ and ‘Application’ and the debit confirmation letters in the instant case were duly acknowledged in accordance with Law laid down on the subject, the instant Appeal deserves to be dismissed.
The reference was made by a bench comprising Justice Jarat Kumar Jain, Member (Judicial), Justice Balvinder Singh, Member (Technical) and V.P Singh, Member (Technical) in the case Bishal Jaiswal vs Asset Reconstruction Company (India) Ltd and others.
ReplyDeleteThe bench opined that the majority decision in V Padmakumar was rendered ignoring several precedents laid down by the Supreme Court and many High Courts.
The Tribunal gave seven reasons for seeking a reconsideration of the majority view of V Padmakumar as follows :
I. There is consistent view of the Hon'ble Supreme Court and High Court of Allahabad, Calcutta, Delhi, Karnataka, Kerala and Telangana that the entries in the Balance Sheet of the Company be treated as an acknowledgement of debt for the purpose of Section 18 of Limitation Act, 1963. The majority view in V. Padmakumar's Case is just contrary to settled law.
II. In V. Padamakumar's Case minority view is in the line of settled law that Balance Sheet of the Company, be treated as acknowledgement of debt for the purpose of Section 18 of the Limitation Act, 1963. In the majority Judgment no reasons have been assigned for disagreement with this view.
III. In support of majority Judgment in V. Padamakumar's Case none of the precedent cited before us.
IV. In V. Padamakumar's Case, it is discussed that the Balance Sheet of the Company is prepared pursuant to Section 92 of the Companies Act, 2013 and filing of Balance Sheet/Annual Return being mandatory under Section 92(4) of the Companies Act, 2013, failing of which attracts penal action under Section 92(5) and (6) of the Act. In our humble opinion Balance Sheet is not Annual Return but is a Financial Statement. Financial Statement is defined under Section 2(40) of the Companies Act, 2013.
V. In V. Padamakumar's Case it is held that the Balance Sheet is required to be prepared under the obligation casted under Section 92 of the Companies Act, 2013. Therefore, it cannot amount to an acknowledgement for Section 18 of the Limitation Act, 1963. The acknowledgement should be voluntary and cannot be given under compulsion of law or with the threat of any penalty/punishment. Hon'ble Calcutta High Court in the case of Bengal Silk Mills Co vs Ismail Golam Hossain Ariff and High Court of Delhi in the case of South Asia Industries Pvt. Ltd vs Krishna Shamsher Jung Bahadur Rana held that merely on the ground that the Balance Sheet of the Company is prepared under the compulsion of law or in discharge of statutory duty, it cannot be held that the Balance Sheet of the Company cannot amount to an acknowledgement of liability.
VI. The Balance Sheet is a material document attached with sanctity that must be submitted to ROC and is used for obtaining a business loan or investments. Relevant provisions in regard to Balance Sheet of the Company provided in Section 129, 130, 131, 134, 137, 143 and 397 of the Companies Act. Section 130 and 131 provides that a Company cannot reopen its Books of Account and Financial Statement without the Order made by the Court of Competent Jurisdiction or the Tribunal. Directors of the Company after making judgments and estimates that are reasonable and prudent cannot resile without permission of Tribunal.
VII. Section 397 of the Companies Act, provides that the documents filed for the purpose of Companies Act, and Rules made thereunder by a Company with the Registrar shall be admissible in any proceedings thereunder. Without proof or production of original as evidence of any contents of the original or of any fact stated therein of which direct evidence is admissible.
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