Judgments

SESH NATH SINGH VS BAIDYABATI SHEORAPHULI CO-OPERATIVE BANK LTD : CASE SUMMARY

The Supreme Court held in Sesh Nath Singh Vs. Baidyabati Sheoraphuli Co-operative Bank Ltd AIR 2021 SC 2637 that delay in filing Application under Section 7 or Section 9 can be condoned in absence of application for condonation of delay. The Supreme Court also held that Section 14 of Limitation Act, 1963 is applicable on application under Section 7 or Section 9.

Facts of the Case

The Financial Creditor has extended finance facilities to the Corporate Debtor, which was declared NPA on 31st March, 2013. On 18th January, 2014 the Financial Creditor issued notice to the Corporate Debtor under Section 13 (2) of the SARFAESI Act. The Corporate Debtor made a representation dated 3.3.2014 to the Financial Creditor under Section 13 (3A) of the SARFAESI Act, which was rejected by the Financial Creditor. The Financial Creditor vide notice dated 13th December, 2014 called upon the Corporate Debtor to handover peaceful possession of the secured immovable assets.

The Corporate Debtor challenged the said notices in Writ Application before Calcutta High Court under Article 226 of the Constitution.

During pendency of the Writ Petition the Financial Creditor took into possession the secured assets on 24th December, 2014 under Section 13 (4) of the SARFAESI Act. On 11th May, 2017, District Magistrate issued an order under the SARFAESI Act for possession of assets of the Corporate Debtor.

The High Court vide order dated 24th July, 2017 passed an interim order restraining the Financial Creditor from taking steps against the Corporate Debtor under the SARFAESI Act until further orders. The High Court was of prima facie opinion that Financial Creditor, being a Cooperative Bank,  could not invoke the provisions of SARFAESI Act.

The Financial Creditor filed an application under Section 7 of the Code  on 10th July, 2018 for initiation of CIRP before NCLT, Kolkata Bench. The NCLT admitted the application and appointed IRP.

An appeal was filed before NCLAT where it was contended for the first time that account of the Corporate Debtor was declared NPA on 31st March, 2013 and Application before NCLT has been filed on 27th August , 2018 after almost five years and therefore barred by Limitation.

The NCLAT dismissed the Appeal on the ground that plea of limitation has been raised for the first time in appeal and further that Financial Creditor was entitled to exclusion under Section 14(2) of the Limitation Act.

Findings of the Court

The following two  issues were involved in this matter  (i) Whether delay beyond three years can be condoned in Section 7 Application in absence of an application for condonation of delay ?  (ii) Whether Section 14 of the Limitation Act will apply to applications under Section 7 of the IBC ?

The Supreme Court noted that Section 238 A provides that the provisions of Limitation Act is applicable to proceedings before Adjudicating Authority. The Supreme Court also noted that in several judgments including B. K. Educational Services Private Ltd Vs Parag Gupta , it has been held that NCLT/NCLAT has the discretion to entertain application /appeal after prescribed period of limitation is sufficient cause is shown.

The Supreme Court held that it is not mandatory to file an application in writing before relief can be granted under Section 5 of the Limitation Act. However,  the Court can always insist that an application or an affidavit showing cause for the delay be filed. No applicant or appellant can claim condonation of delay under Section 5 of the Limitation Act as of right, without making an application.

Section 14 (2) of the Limitation Act provides for exclusion of time in computing the period of limitation in certain circumstances. Similarly Section 18 of the Limitation Act, an acknowledgment of present subsisting liability, made in writing in respect of any right claimed by opposite party and signed by the party against whom the right is claimed, has the effect of commencing of a fresh period of limitation, from the date on which the acknowledgment is signed. However such acknowledgment must be made before the period of limitation expires.

The Supreme Court observed that Section 238 A IBC makes the provisions of the Limitation Act applicable to proceedings before NCLT or NCLAT. The IBC does not exclude the application of Section 6, or 14 or 18 or any other provision of the Limitation Act.

The condition for exclusion under Section 14 are that the earlier proceedings should have been prosecuted diligently and in good faith and the proceedings should have been prosecuted in a forum which from defect of jurisdiction or other cause of a like nature was unable to entertain it.

The Supreme Court in Consolidated Engineering Enterprises Vs Principal Secretary, Litigation Department and Ors (2008) 7 SCC 169 has held that in absence of any provision in the Arbitration and Conciliation Act, 1996 which excluded the applicability of Section 14 of the Limitation Act, there was no reasons why Section 14 of the Limitation Act should not apply to an application for setting aside an arbitral award.

The Supreme Court in Commissioner, M. P. housing Board  Vs Mohanlal (2016) 14 SCC 199 has held that Limitation Act has to be interpreted to advance the cause of the justice.

The Supreme Court held that Section 14 (1) (2) and (3) do not say that Section 14 can only be invoked on termination of the earlier proceedings prosecuted in good faith.

The Supreme Court held that Explanation (a) can not be construed in a narrow pedantic manner to mean that Section 14 can never be invoked until and unless the earlier proceedings have actually been terminated for want of jurisdiction or other cause of such nature. Explanation (a) only restricts the period of exclusion to the period between the date of initiation and the date of termination. An applicant cannot claim any further exclusion.  Section 14 excludes the time spent in proceeding in a wrong forum, which is unable to entertain the proceedings for want of jurisdiction or other such cause. Where such proceedings have ended, the outer limit to claim exclusion under Section 14 would be the sate on which proceedings ended.

The Supreme Court held that since proceedings in the High Court were still pending on the date of filing of the Application under Section 7 of the IBC in NCLT, the entire period after the initiation of proceedings under the SARFAESI Act could be excluded.

The Supreme Court observed that an Adjudicating Authority under the IBC is not a substitute forum for a collection of debt in the sense it cannot reopen debts which are barred by law or debts, recovery whereof have become time barred. The Adjudicating Authority does not resolve disputes in the manner of suits, arbitrations and similar proceedings. However,   the ultimate object of an application under Section 7 or 9 of IBC is the realization of debt by invocation of Insolvency Resolution Process. Further cause of invocation of Insolvency proceedings is default as is the case with SARFAESI proceedings. As such there is no reason why Section 14 or 18 should not apply to the insolvency proceedings.

The Supreme Court observed that IBC makes the Limitation Act applicable to the proceedings in NCLT/NCLAT “as far as may be” or and/or in other words to the extent they may be applied.  The words “as far as may be “ are not otiose. These words are to be understood in a manner which harmonise with the subject matter of the legislation and the object which the Legislature has in view. In context of IBC, Section 14 could not be interpreted in with rigid and pedantic manner to hold that only civil proceedings in Court would enjoy exclusion.

The Supreme Court concluded that keeping in mind the scope and ambit of proceedings under IBC before NCLT/NCLAT, the expression Court in Section 14 (2) would be deemed to be any forum for a civil proceedings including any Tribunal or any forum under the SARFAESI Act. The Supreme Court also held that Section 5 and Section 14 are not mutually exclusive. Even where Section 14 does not strictly apply, the principles of Section 14 can be invoked to grant relief to an applicant under Section 5  of Limitation Act by purposively construing “sufficient cause”.

The Supreme Court held that NCLAT has rightly refused to stay the proceedings before the NCLT.

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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.

Mukesh Kumar Suman

Mukesh Kumar Suman

Mukesh Kumar Suman is an advocate based at Delhi. He has rich experience in civil, criminal, commercial, arbitration and corporate insolvency matters. He regularly appears before District Courts, NCLT, NCLAT, High Court and the Supreme Court. He can be approached at mukesh_suman@outlook.com or +91 9717864570.

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