IBC - Delay In Filing CIRP Application Condonable On Sufficient Reasons : Supreme Court

The Supreme Court observed that delay in initiating Corporate Insolvency Resolution Process (CIRP) is condonable on sufficient grounds.

The bench of Justices Ajay Rastogi and C T Ravikumar noted that the Limitation Act, 1963 are applicable to applications filed under Sections 7 and 9 of IBC. It be so, the position is that the period of limitation is three years from the right to apply accrues but the delay is condonable on sufficient grounds, the bench said.

In this case, Sabarmati Gas Limited filed an application under Section 9 IBC before NCLT, Ahmedabad seeking initiation of Corporate Insolvency Resolution Process (CIRP) in its capacity as Operational Creditor of the Shah Alloys Limited. NCLT dismissed the application on the grounds of being barred by limitation and existence of a ‘pre-existing dispute’ between the parties. As the NCLAT dismissed the appeal, Sabarmati Gas Ltd., approached the Apex Court.

In appeal, it raised the following issues (1)  Whether in computation of the period of limitation in regard to an application filed under Section 9, IBC the period during which the operational creditor’s right to proceed against or sue the corporate debtor that remain suspended by virtue of Section 22 (1) of the Sick Industrial Companies (Special Provisions Act, 1985) (SICA) can be excluded, as provided under Section 22 (5) of SICA? (2)Whether the respondent has raised a dispute which is describable as 'pre-existing dispute’ between itself and the appellant warranting dismissal of application under Section 9 of the IBC at the threshold?

Referring to earlier judgments in Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Private Limited (2020) 15 SCC 1, the bench observed:

"When the limitation period for initiating CIRP under Section 9, IBC is to be reckoned from the date of default, as opposed to the date of commencement of IBC and the period prescribed therefor, is three years as provided by Section 137 of the Limitation Act, 1963 and the same would commence from the date of default and is extendable only by application of Section 5 of the Limitation Act, 1963 it is incumbent on the Adjudicating Authority to consider the claim for condonation of the delay when once the proceeding concerned is found filed beyond the period of limitation..As relates Section 5 of the Limitation Act showing ‘sufficient cause’ is the only criterion for condoning delay. ‘Sufficient Cause’ is the cause for which a party could not be blamed.", the court observed

The bench, therefore, answered the first issue in favour of the appellant as follows:

"In the absence of provisions for exclusion of such period in respect of an application under Section 9, IBC, despite the combined reading of Section 238A, IBC and the provisions under the Limitation Act what is legally available to such a party is to assign the same as a sufficient cause for condoning the delay under Section 5 of the Limitation Act. In such eventuality, in accordance with the factual position obtained in any particular case viz., the period of delay and the period covered by suspension of right under Section 22 (1), SICA etc., the question of condonation of delay has to be considered lest it will result in injustice as the party was statutorily prevented from initiating action against the industrial company concerned"

However, the court upheld the finding that there existed a ‘pre-existing dispute’ between the parties. In terms of the decision in Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd. (2018) 1 SCC 353) what is to be looked into is the existence or otherwise of a dispute and/or the suit or arbitration proceedings prior to the receipt of demand notice or invoice, as the case may be, the court noted while dismissing the appeal.

Case details

Sabarmati Gas Limited vs Shah Alloys Limited | 2023 LiveLaw (SC) 9 | CA 1669 of 2020 | 4 Jan 2023 | Justices Ajay Rastogi and C T Ravikumar

For Appellant(s) Mr. Piyush Joshi, Adv. Mr. Senthil Jagadeesan, AOR Ms. Sumiti Yadava, Adv. Ms. Sonakshi Malhan, Adv. Mr. Sajal Jain, Adv.

For Respondent(s) Mr. Sumit Attri, Adv. Ms. Ritu Anand Vishwakarma, Adv. Mr. Satatya Anand, Adv. For M/S. Cyril Amarchand Mangaldas

Headnotes

Insolvency and Bankruptcy Code  ; Section 9 - Limitation Act, 1963 ; Section 5 and Article 137 - The limitation period for initiating CIRP under Section 9, IBC is to be reckoned from the date of default, as opposed to the date of commencement of IBC and the period prescribed therefor, is three years as provided by Article 137 - The same would commence from the date of default and is extendable only by application of Section 5 Limitation Act - it is incumbent on the Adjudicating Authority to consider the claim for condonation of the delay when once the proceeding concerned is found filed beyond the period of limitation. (Para 23-24)

Limitation Act, 1963 ; Section 5 - 'Sufficient cause’ is the only criterion for condoning delay. ‘Sufficient Cause’ is the cause for which a party could not be blamed. (Para 25)  

Insolvency and Bankruptcy Code ; Section 9 - Pre Existing Dispute - What is to be looked into is the existence or otherwise of a dispute and/or the suit or arbitration proceedings prior to the receipt of demand notice or invoice, as the case may be - Referred to Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd. (2018) 1 SCC 353).(Para 34-38)

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