Article 1 Of Limitation Act,1963 Will Not Apply To Proceedings Under Insolvency And Bankruptcy Code, 2016: NCLAT

Brief Background

The Parties are involved in the business of transport services. A total no. of 174 Invoices were raised by Appellant upon Respondent and the last payment was received by Appellant on 26.09.2016. The Appellant sought reconciliation of account for the outstanding dues but the same remained unpaid.

The Appellant sent a demand notice for an amount of INR 76.04 Lakhs and subsequently filed the Petition under Section 9 on 24.10.2019 against the Respondent.

Impugned Order

NCLT Mumbai, Court-III dismissed the Section 9 petition filed by the Appellant on the ground that the Petition is filed on the basis of invoices which were prior to three years from the date of filing of Section 9 Petition and therefore, held that the Section 9 Petition is barred by limitation.

Contentions of Appellant

It was contended by the Appellant that the Parties maintained a running account and the same is reflected in the ledger account of the Respondent. It was also contended that the last invoice was dated 10.10.2016 and since, Article 1 of the Limitation Act states that the limitation period of 3 years begins to run from the close of the year in which the last item admitted or proved is entered into the account and therefore, the limitation period will start from 31.03.2017. The Petition was filed on 24.10.2019 and therefore the same was within the period of three years.

Contentions of Respondent

It was contended on behalf of the Respondent that the claim was raised on the basis of 174 invoices which dated backs to 10.10.2016 and the Petition was filed on 24.10.2019 and thus clearly barred by limitation.

It was further contended by the Respondent that the argument concerning applicability of Article 1 of the Limitation Act was not even raised before the NCLT and even otherwise, it is well settled that the only Article 137 of the Limitation Act will be applicable.

Decision/Analysis by NCLAT

NCLAT observed that it is well settled that the provisions of Limitation Act are applicable to proceedings under IBC. Thereafter, the NCLAT framed the question of law which was as follows;

"12. The question to be considered in the present case is as to whether Appellant can take benefit of Article 1 of the Limitation Act, 1963…"

While the abovementioned question, NCLAT relied on the case of BK Educational Services Pvt. Ltd. v. Parag Gupta and Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries wherein Supreme Court held that the period of limitation for filing an application under Section 7 or 9 of the Code is to be decided as per Article 137 of the Limitation Act.

NCLAT further held that Article 1 of Limitation Act deals with "suits relation to accounts" and an application under Section 9 of the Code cannot be said to be a suit relating to accounts.

The Bench further ruled that the last payment was received on 26.09.2016 and last invoice was raised on 10.10.2016 and therefore, as per Article 137 application under Section 9 has to be file within a period of three years from the time "when the right to apply accrues" and the same will accrued when the invoices issued by Appellant were not paid by Respondent.

Case Title: S M Ghogbhai versus Schedulers Logistics India Pvt. Ltd

Counsel for Appellant: Adv. Ekta Mehta

Counsel for Respondent: Adv. Kayomars K. Kerawalla, Adv. Kunal Mehta and Adv. Robin Fernades

Click Here To Read/Download Order