B K EDUCATIONAL SERVICES VS PARAG GUPTA & ASSOCIATES : CASE SUMMARY
The Supreme Court in B. K. Educational Services Pvt. Ltd. Vs. Parag Gupta and Associates (2019) 11 SCC 633 held that Section 238A of the Code introduced through 2018 Second Amendment is clarificatory in nature and will be applicable with retrospective effect.
Facts of the Case
Parliament has amended Insolvency and Bankruptcy Code, 2016 vide Insolvency and Bankruptcy code (Second Amendment) Act, 2018 and inserted inter alia Section 239A , whereby provisions of Limitation Act, 1963 was made applicable to Insolvency and Bankruptcy Code, 2016. Section 238 A reads as under:
238 A. 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.
The major issue before the Supreme Court in this case was whether Provisions of Limitation Act will apply from retrospective effect.
The NCLAT had held that the Limitation Act is not applicable for initiation of Corporate Insolvency Resolution Process but doctrine of Limitation and Prescription is necessary to be looked into for determining the question whether the application under Section 7 or Section 9 can be entertained after long delay, amounting to laches and thereby the person forfeited his claim.
Findings of the Court
The Supreme Court noted that NCLT has been constituted under Section 408 of the Companies Act, 2013. NCLT has been constituted to discharge such powers and functions that are conferred on it not merely under the Companies Act but also under any other law for the time being in force.
The Supreme Court also noted that Section 433 provides that Provisions of Limitation Act, 1963 will apply to proceedings and appeals before the Tribunal or Appellate Tribunal.
The Supreme Court also noted that winding up applications, compromise, arrangements and reconstruction have to be transferred from High Courts to NCLT. Limitation Act was applicable to these proceedings. After transfer it can not be the case that Limitation Act will not apply to these proceedings.
The Supreme Court held that Section 433 of the Companies Act, 2013 would apply to the Tribunal even when it decides applications under Section 7 and Section 9 of the Code.
The Supreme Court relied on judgment in M. P. Steel Corporation Vs. CCE (2015) 7 SCC 58 and held that limitation , being procedural in nature, would ordinarily be applied retrospectively, save and except that the new law of limitation cannot revive a dead remedy. In the present case an application which is filed in 2016 or 2017 after the Code has come into force, cannot suddenly revive a debt , which is no longer due as it is time-barred.
The Supreme Court held that amendment to Section 238A would not serve its object unless it is construed as being retrospective, as otherwise, applications seeking to resurrect time -barred claims would have to be allowed, not being governed by law of limitation.
The Supreme Court observed that the Code cannot be triggered in the year 2017 for a debt which was time barred in 1990, as that would lead to absurd consequences. The expression “debt due” in the definition sections of the Code would obviously refer debts that are “due and payable” in law i.e. the debts that are not time barred.
The Supreme Court also held that the expression “default” bears the same meaning in Section 7 and 8 of the Code making it clear that the CIRP against the Corporate Debtor can only be initiated by a financial or operational creditor in relation to debts which have not become time-barred.
The Supreme Court concluded that Limitation Act is applicable to Section 7 or 9 application from inception of the Code. If 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 facts of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such application.
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Mukesh Kumar Suman is an advocate and legal author based at Delhi. He regularly appears before various Judicial Forums including NCLT, NCLAT, High Courts and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.