Section 9 IBC- Limitation Does Not Commence When The Debt Becomes Due But Only When A Default Occurs: Supreme Court

The Supreme Court has held that limitation does not commence when the debt becomes due but only when a default occurs.

The bench comprising Justices DY Chandrachud, Surya Kant and Vikram Nath that the debt is defined in Insolvency and Bankruptcy Code as the non-payment of the debt by the corporate debtor when it has become due. 

In this case, the appellant placed orders with the Proprietary Concern, which was the supplier of Thorn Lighting India Private Limited through three purchase orders dated 24 June 2013. The contention raised in this case was that the date of default mentioned is 7 November 2013, when the cheque was issued by CMRL to the Proprietary Concern and therefore the limitation of three years under Article 137 of the Limitation Act  would expire on 7 November 2016, while the application under Section 9 was only filed on 1 November 2017

The bench noted that in the application 7 November 2013 is mentioned as the date on which the debt became due. Referring to B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates (2019) 11 SCC 633, the bench said:

Limitation does not commence when the debt becomes due but only when a default occurs. As noted earlier in the judgment, default is defined under Section 3(12) of the IBC as the non-payment of the debt by the corporate debtor when it has become due.

The court noted that both the parties were in negotiation in relation to the re-payment and the minutes of meeting show that the Proprietary Concern was willing to make the re-payment if CMRL issued a letter stating that they will not pursue a claim in the future or if the applicant provided a bank guarantee for the amount.

"A final letter was addressed by the appellant to the Proprietary Concern on 27 February 2017, demanding the payment on or before 4 March 2017. The Proprietary Concern replied to this letter on 2 March 2017, finally refusing to make re-payment to the appellant. Consequently, the application under Section 9 will not be barred by limitation.", the court held.

Case name: Consolidated Construction Consortium Limited vs Hitro Energy Solutions Private Limited

Citation. : 2022 LiveLaw (SC) 129

Case no.|date: CA 2839 of 2020 | 4 Feb 2022

Coram: Justices DY Chandrachud, Surya Kant and Vikram Nath

Counsel: Adv M P Parthiban for appellant, Adv K Parameshwar for respondent

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