Flyer- SC Limitation

The Hon’ble Supreme Court on 14.08.2020 decided on various factors of limitation. The judgment is as follows:

Background:

• The Corporate Debtor, Veer Gurjar Aluminium Industries Pvt. Ltd, defaulted on 08.07.2011. Subsequently Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, (SARFAESI) proceedings were ongoing and the Financial Creditors approached Hon’ble National Company Law Tribunal (NCLT) under the IBC, 2016.
• Corporate Insolvency Resolution Process (CIRP) was admitted by the Hon’ble NCLT, Mumbai Bench against the CD. However, the admission was contested against in the Appellate Tribunal that the same being filed in March 2018, is barred by limitation. The date of NPA in 2011 was taken as default and any acknowledgement under Section 18 of the Limitation Act also could not be proved by the Financial Creditors. The OTS in this instant case was only provided in 2018 after the three year limitation period.
• On 14.05.2019, The Hon’ble NCLAT, upheld the initiation of CIRP against the CD, under Section 7 stating that is was barred by limitation however the limitation for mortgage was 12 years. The Financial Creditors mentioned that the IBC, 2016 came into force in 2016 and March 2018 is well within limitation.

Judgment- IBC and Limitation:

• The Hon’ble Supreme Court stressed on the Preamble of the Code, stating that the main objective was maximization of value of assets and to balance the interest of the stakeholder. The Supreme Court also relied on various case laws to establish that the interest of the CD is to be protected and liquidation is to be construed as the last resort. The court stressed that it is not a money recovery mechanism.
• The Hon’ble Supreme Court further enunciated that there must be an establishment of default and debt payable in law or fact, to the satisfaction of the Adjudicating Authority.
• The Hon’ble Supreme Court also stated that the intention of the Code is not to give life to time barred debts and reiterated that the limitation period for a Section 7 application is three years from the date on which the default occurs unless the said delay can be condoned.
• Default as mentioned “is that of actual non-payment by the corporate debtor when a debt has become due and payable.”
• The Hon’ble Supreme Court further held that Article 62 of the Limitation Act does not apply and the Code is not for the enforcement of mortgage liability. The 12 year limitation period for mortgage properties do not apply for Section 7 matter and is against the Code.
• The Hon’ble Supreme Court further stated that the question of limitation is “essentially a mixed question of law and facts” and when the period of limitation is to be extended, there must be supporting facts. The extension of limitation can be made with the acknowledgment or on establishing any other date of default.
• In course of the judgment the Hon’ble Supreme Court relied on various landmark judgments such as the BK.Educational Services Pvt Ltd v Paras Gupta and Associates (AIR 2018 SC 5601), Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Ltd ((2019) 10 SCC 572), Jignesh Shah and Anr. v. Union of India and Anr. (2019 SCC Online 1254) and many others.

Held:

The Hon’ble Supreme Court held that the instant matter was barred by limitation and the fact that the Financial Creditors could not prove any acknowledgement of debt or a further date of default leads to the conclusion that the impugned orders have been set aside and the application of the Financial Creditor has been rejected.

The Court further held that the moratorium has been lifted and the matter before the DRT or any other court/tribunal can be taken up and heard and nothing in this proceeding shall affect the other proceedings.