In a recent judgement, NCLAT New Delhi (2020.08.28) in Jagdish Prasad Sarada Vs. Allahabad Bank [CA (AT) (Insolvency) No. 183 of 2020], has observed that “We are of the firm view that the determining factor is the three years period from date of default / NPA”.
# 10. The view taken by the Hon’ble Apex Court in ‘B.K.Educational Services Private Limited Vs. Parag Gupta and Associates’ that the limitation period for application under Section 7 of the I&B 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 The Limitation Act, 1963 if any case for condonation of delay is carved out, has again been reiterated in the latest pronouncement of Hon’ble Apex Court in ‘Babulal Vardharji Gurjar Vs. Veer Gurjar Aluminium Industries Pvt. Ltd. & Anr. (Civil Appeal No.6347 of 2019) decided on 14th August, 2020. It is therefore manifestly clear that date of default will be the date of declaration of account as NPA and such date of default would not shift.
# 11. We are of the firm view that the determining factor is the three years period from date of default/NPA. This Appellate Tribunal has also observed in Rajendra Kumar Tekriwal Vs. Bank of Baroda in Company Appeal(AT) (Ins) No.225 of 2020 dated 13.08.2020 that the period of three years from the date of the Account of Corporate Debtor is classified as NPA then it becomes impermissible to proceed with Section 7 Application as observed in the para 11 of the Judgment.
# 12. All these lead to reiterate that the provisions of The Limitation Act, 1963, vide Section 238A of the I&B Code, 2016, will be applicable to all NPA cases provided they meet the criteria of Article 137 of the Schedule to The Limitation Act, 1963. The extension for the period of Limitation can only be done by way of application of Section 5 of The Limitation Act, 1963, if any case for the condonation of delay is made out.
With this decision, we are left with two dates i.e.
a). Date of NPA &
b). Date of Default,
for counting the Limitation period, while determining the eligibility of insolvency application under section 7 of the Code.
If both dates (i.e. Date of NPA & Date of Default) are the same or different ?
Default has been defined in the Code as under;
# Section 3. Definitions. –
(12) “default” means non-payment of debt when whole or any part or instalment of the amount of debt has become due and payable and is not paid by the debtor or the corporate debtor, as the case may be;
Code & Regulations made thereunder, have not defined NPA or Date of NPA. The concept of NPA is stranger to the Code (except for the purpose of eligibility of resolution applicant under section 29A).
RBI in Prudential Norms for classification of Bank’s assets (Loans & Advances) and for reserve requirements of the Banks has laid down the definition of Non Performing Assets (NPA).
Definition of NON PERFORMING ASSET (NPA) as per RBI Prudential Norms for Asset Classification.
When it ceases to generate Income for the Bank.
Non-performing as per criteria.
Risk is Higher than Normal Risk.
Classify an account as NPA only if the installment /interest due and charged during any quarter is not serviced fully within 90 days from the end of the quarter.
From the above definition of NPA, it can be observed that Banks are required to classify a loan account as NPA only after 90 days from the end of the quarter in which default has occurred & default has continued fully or partially. As such there will be a gap of 180 to 90 days, between the date of default & date of classifying the account as NPA by the bank.
Thus in my opinion, taking the date of NPA in alternative to date of default for calculating limitation period in insolvency application by NCLAT was erroneous & beyond the provisions of the Code & the decision pronounced attracts the “Doctrine of Per Incuriam”.
Case Law;
1. SCI (2020.08.14) in Babulal Vardharji Gurjar Vs. Veer Gurjar Aluminium Industries Pvt. Ltd. & Anr. (Civil Appeal 6347 of 2019) after analyzing the earlier decisions of the Hon’ble Supreme Court summed up the position (date of default, limitation etc.) in the following words
# 30. When Section 238-A of the Code is read with the above-noted consistent decisions of this Court in Innoventive Industries, B.K. Educational Services, Swiss Ribbons, K. Sashidhar, Jignesh Shah, Vashdeo R. Bhojwani, Gaurav Hargovindbhai Dave and Sagar Sharma respectively, the following basics undoubtedly come to the fore:
(a) that the Code is a beneficial legislation intended to put the corporate debtor back on its feet and is not a mere money recovery legislation;
(b) that CIRP is not intended to be adversarial to the corporate debtor but is aimed at protecting the interests of the corporate debtor;
(c) that intention of the Code is not to give a new lease of life to debts which are time-barred;
(d) that the period of limitation for an application seeking initiation of CIRP under Section 7 of the Code is governed by Article 137 of the Limitation Act and is, therefore, three years from the date when right to apply accrues;
(e) that the trigger for initiation of CIRP by a financial creditor is default on the part of the corporate debtor, that is to say, that the right to apply under the Code accrues on the date when default occurs;
(f) that default referred to in the Code is that of actual non-payment by the corporate debtor when a debt has become due and payable; and
(g) that if default had occurred over three years prior to the date of filing of the application, the application would be time-barred save and except in those cases where, on facts, the delay in filing may be condoned; and
(h) an application under Section 7 of the Code is not for enforcement of mortgage liability and Article 62 of the Limitation Act does not apply to this application
Doctrine of Per-Incuriam
2. 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."
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.
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