BABULAL VARDHARJI GURJAR VS. VEER GURJAR ALUMINIUM INDUSTRIES PVT. LTD. : CASE SUMMARY
The Supreme Court in Babulal Vardharji Gurjar Vs Veer Gurjar Aluminium Industries Pvt. Ltd. (2020) SCC Online SC 647 held that Limitation will start running in case of Section 7 application from date of default and not from commencement of IBC. The Supreme Court also held that Section 7 IBC application is not for enforcement of mortgage and limitation under Article 62 of Limitation Act will not apply on Section 7 Applications.
FACTS OF THE CASE
The lender banks i.e. Corporation Bank, India Overseas Bank, and Bank of India sanctioned and advanced loan facilities to the Corporate Debtor. The Corporate Debtor defaulted in payment of loan. The Banks initiated recovery proceedings under SARFAESI Act.
Respondent No. 2 also filed Application under Section 7 IBC for initiation of CIRP. The Adjudicating Authority admitted the Application vide order dated 09.08.2018.
An appeal was filed against order of the NCLT dated 09.08.2018 before NCLAT which dismissed the same. Appeal was filed before the Supreme Court. The Supreme Court noted that aspect of limitation has not been considered and remanded the matter back to NCLAT. The NCLAT again dismissed the application by observing that the Application is not barred by limitation mainly on two grounds – (i) Right to apply under Section 7 only accrued on 01.12.2016 and (ii) period of recovery of mortgaged property is twelve years.
THE FINDINGS OF THE SUPREME COURT
The Supreme Court observed that CIRP is not intended to be adversarial to the Corporate Debtor but is essentially to protect its interests.
The Supreme Court noted that Section 238A provides that provisions of Limitation Act, as far as may be, applicable to the proceedings under IBC or appeals.
The supreme Court surveyed the provisions of the Code and several judgments and observed 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 form the date when right to apply accrues. Limitation starts to run from date of default on the Corporate Debtor and not from date of coming into force of IBC. There is nothing in IBC to suggest even remotely that period of limitation for the purposes of Section 7 Application will commence from commencement of the Code itself. Further such observation is in teeth of law declared by the Supreme Court in B. K. Educational Services Pvt. Ltd. Vs. Parag Gupta & Associates AIR 2018SC5601.
The Supreme Court observed that in Sagar Sharma Vs Phoenix Arc (2019) 10 SCC 353 it has been held that date of coming into force of IBC does not and cannot form a trigger point of limitation for applications under the Code.
On the aspect mortgage, the Supreme Court held that Application under Section 7 of IBC is not for enforcement of mortgage liability and Article 62 of the Limitation Act does not apply to such applications.
The Supreme Court observed that the date of default has been mentioned as 08.07.2011 in application under Section 7. No other date of default has been mentioned in the application or any suggestion for acknowledgement has been made. The question of limitation is mixed question of law and fact and when a party seeks application or any particular provision for extension or enlargement of period of limitation, the relevant facts are required to be pleaded and requisite evidence is required to be adduced. In the instant case the Respondent never came out with any pleading other that the date of default as such no case of extension of period of limitation is available to be examined.
The Supreme Court set aside the order of NCLAT and rejected application filed under Section 7 IBC for initiation of CIRP.
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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.