Author: Komal Bhati, 2nd Year student at ICFAI Law School Hyderabad.
Citation: AIR 2018 SC 5601
Date of Judgement: October 11, 2018
Bench: Rohinton Fali Nariman and Navin Sinha
Original Copy: View
Issues in Question:
- Whether the Limitation Act, 1963 can be applied to the applications made under Section 7 and/or Section 9 of IBC, from its commencement i.e., December 1, 2016, till June 06, 2018, the date IBC was amended?
Background of the Case:
- In the case of B.K. Educational Services Private Limited Vs. Parag Gupta and Associates the appeal was made to the Supreme Court questioning the applicability of the Limitation Act,1963 on the applications that were filed under Sec 7 and/or Sec 9 of the IBC, from its commencement till its amendment through which it incorporated Section 238A.
- NCLAT held that the applicant would be allowed to explain the delay in filling the application if there were no laches on the applicant’s part, even if the delay was of more than three years from the date of cause of action. And no question arises to reject the applications which were already being heard. Even if it is assumed that the Limitation Act can be applicable then it should be noted that three years have not even passed since the IBC was commenced.
- Appellant’s counsel by relying on the report by the Insolvency Law Committee (2018) argued that the Amendment Act’s objective was to clarify the law by the introduction of Section 238A in the IBC and it must be held retrospectively.
- Advocate on behalf of the respondents gave the argument that it can be seen through the periods of limitation specified that the Limitation act isn’t applicable because the code deals with matters of insolvency and not with those of debt recovery. Since the NCLT is a tribunal and not a court, the Limitation Act cannot be applied to it. He also argued that Section 238A shouldn’t be retrospective as it violates the right of applications that were filed under Section 7 and/or 9 before June 06, 2018.
- Section 238A was deemed to be important by the court as all the cases regarding the Companies Act pending before the courts are already being covered by the Limitation Act. But when these cases get transferred to the Tribunal, the Limitation Act will not cease to apply just because it is before the tribunal now. It would be wrong to say that the Limitation Act would not be applicable to the applications that came after the introduction of the Code but will be applicable to the ones that were transferred from the courts.
- The court held that the limitation does not bar the right but the remedy. Keeping in mind the procedural nature of the limitation, it should be applied retrospectively. If the Limitation Act is not applied, creditors would have the option to revive a time-barred debt through IBC. So, the objective behind the amendment for incorporation Section 238A cannot be served unless it is made as being retrospective. So that an applicant under the code, cannot revive a time-barred debt.
- The court stated that the applications filed under Sec 7 and/or Sec 9 of IBC, from the time of its inception will be governed by the Limitation Act. The application will be barred under Article 137 of the Limitation Act if the applicant filed the claim after 3 years of when the default occurred. In some exceptional cases, if the facts of the case can explain the delay in filing the claim, then Sec 5 of the Limitation Act can be applied to excuse the delay.
- This case talks about the applicability of the Limitation Law on the applications made under Sec 7 and/or Sec 9 of the IBC, from its inception till its amendment to incorporate Section 238A.
- This case presents the objective of the amendment as to provide a specific time frame to be followed within which a person can file an application. As rationalized in the court as well, the intention behind this was to prevent creditors from filing for delayed and dead claims through this code.
- If such limitations aren’t enacted then a person can file an application for a cause of action that happened many years ago leading to never-ending litigation. To achieve its desired motive the law has to be applied retrospectively. The arguments such as that even three years have not elapsed since the time of its inception will only defeat the purpose of Limitation law. This law only bars the remedy, not the right itself as without the Limitation law it would only give a new life to the debts that otherwise would be time-barred or dead.