Insolvency And Bankruptcy Code Is Not For Money Recovery Proceedings: Supreme Court Reiterates

Invest Asset Securitisation and Reconstruction Pvt. Ltd. (Invest Asset) filed an appeal before the Supreme Court under Section 62 of the Insolvency and Bankruptcy Code, 2016 against the orderdated 18.11.2021 passed by NCLAT wherein NCLAT dismissed the appeal of Invest Asset on the ground that the section 7 application filed by Invest against Girnar is barred by limitation.

Brief Background

The account of the Girnar Fibres Ltd. (Girnar) was declared NPA by State bank of India on 28.02.2002 and thereafter, Girnar was declared sick by BIFR under SICA Act, 1986 on 25.04.2006. Loan of Girnar was assigned to Invest Asset by SBI on 22.09.2011 and the reference filed by Girnar was dismissed by BIFR on 04.05.2016. Thereafter, Invest Asset filed the section 7 application against Girnar on 01.10.2018.

Proceedings Before NCLAT

It was contended by Invest Asset before NCLAT that the first accrual of cause of action is 05.05.2016 which is after the dismissal of reference by BIFR and therefore, the Section 7 application was filed within the period of three years as per Article 137, Schedule I of Limitation Act, 1963.

The contentions of Invest Asset were rejected by NCLAT on the ground that the reference before BIFR was abated on 13.08.2015 and also, the period between 25.04.2006 (Girnar was declared sick by BIFR) and 04.05.2016 (dismissal of reference by BIFR) cannot be excluded for computing the limitation period and therefore, the Section 7 application of Invest Asset is barred by limitation and dismissed the appeal of Invest Asset.

Decision Of Supreme Court

The Supreme noted that the NCLAT pointed out that the right to sue accrued on the date of declaration of NPA i.e., 28.02.2002 but there is no evidence of any acknowledgement of liability in terms of Section 18 of the limitation Act, 1963.

Thereafter, the Supreme Court emphasized that time and again, it has been expressed and explained that the intent of code is essentially to bring corporate debtor on its feet and not money recovery.

"The intent of the appellant had only been to invoke the provisions of the Code so as to enforce recovery against the corporate debtor"

Accordingly, the Supreme Court dismissed the appeal of Invest Asset.

Case title: Invest Asset Securitisation and Reconstruction Pvt. Ltd. versus Girnar Fibres Ltd

Citation : 2022 LiveLaw (SC) 423

Counsel for Appellant: Harshvir Pratab Sharma, Sr Adv with Anoop Prakash Awasthi, AOR and Advocate P. Singh.

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