JIGNESH SHAH VS UNION OF INDIA : CASE SUMMARY
The Supreme Court in Jignesh Shah Vs Union of India (2019) 10 SCC 750 has held that suit for recovery and winding up petitions are separate and distinct remedy and a suit of recovery instituted prior to winding up petition will not impact the limitation within which the winding up proceedings is to be filed by keeping the debt somehow alive for the purpose of winding up proceedings.
FACTS OF THE CASE
Share purchase agreement was executed between MCX Stock Exchange Ltd. and IL & FX whereby IL & FX agreed to purchase 442 lakh equity shares of MCX -SX from MCX. Pursuant to this agreement La-Fin, a group company of MCX, issued a letter of undertaking to IL & FX wherein it was stated that La-Fin would offer to purchase from IL & FS the shares of MCX-SX after period of one year but before period of three years from date of investment. Period of three years expired in August, 2012.
IL & FX by letter dated 3rd August, 2012 exercised its option to sell entire holding of shares MCX -SX and called upon the La -Fin to purchase shares. La-Fin replied that it was under no obligation to buy the aforesaid shares. IL & FX filed suit for specific performance against La -Fin or in alternative damages.
Statutory notice was also issued under Section 433 and 434 of the Companies Act, 1956 on 3rd November, 2015 by IL & FX. Winding up petition was filed by IL & FX on 21st October, 2016 in Bombay High Court under Section 433 (e) of the Companies Act, 1956.
After coming in force of IBC, winding up petition was transferred to NCLT. Winding up Petition was admitted as Section 7 Application by NCLT on 28th August, 2018. Appeal filed before NCLAT was also dismissed.
FINDINGS OF THE SUPREME COURT
The Supreme Court observed that with the introduction of 238A in IBC , the provisions of the Limitation Act apply to applications made under IBC. After coming into force of the Code, winding up petitions have been converted into Petitions under the Code.
In the instant case, it has to be decided whether on the date when winding up petition was filed was barred by limitation. If such petition is time barred, Section 238A will not give a new lease of life to time barred petition. Winding up petition has been filed beyond three years as such it was time barred
The Supreme Court analysed several judgments and held that a suit of recovery based upon a cause of action that is within limitation cannot in any manner impact the separate and independent remedy of winding up proceedings. A suit for recovery, which is separate and independent proceedings distinct from the remedy of winding up would , in no manner, impact the limitation within which the winding up proceedings is to be filed, by keeping the debt somehow alive for the purpose of winding up proceedings.
The Supreme Court also rejected the argument that in case of winding up petitions, cause of action for purposes of limitation would include the commercial insolvency or loss of substratum of the company. The Supreme Court observed that in case of winding up petitions the trigger of limitation is the inability of a company to pay debts. The trigger occurs when a default takes place. It is this date alone which is relevant for filing winding up Petition. The stage at which the Court examines whether the company is commercially insolvent is once it begins to hear winding up petition for admission on merits.
The Supreme Court held that winding up petition filed on 21st October, 2016 being beyond the period of three years mentioned under Article 137 of Limitation Act is time barred and cannot be proceeded any further. Accordingly, the Supreme Court set aside orders of NCLT and NCLAT.
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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.