Supreme Court: Proceedings under sec 7 of IBC fall under the ambit of section 14 of Limitation Act

Supreme Court: Proceedings under sec 7 of IBC fall under the ambit of section 14 of Limitation Act

The Supreme Court (SC) on 22 March 2021, in the case titled Sesh Nath Singh & Anr. (Appellants) v. Baidyabati Sheoraphuli Co-operative Bank Ltd. & Anr. (Respondents) held that in an application filed under Section 7 of the Insolvency and Bankruptcy Code (IBC) the applicant can claim the benefit of Section 14 of the Limitation Act, regarding the proceedings under the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (SARFAESI Act).

The SC bench comprising of Justices Indira Banerjee and Hemant Gupta held that Section 14 of the Limitation Act applies to an application under Section 7 of the IBC. It added that there is no rule as such that exclusion of time under Section 14 is only available in the case where the proceeding terminates before the wrong Forum.

The Court further held that SARFAESI proceedings are 'civil proceedings' in nature. The Limitation Act Section 14 deals with 'exclusion of time of proceeding bona fide in Court without jurisdiction'.

The factual matrix of the case is that the National Company Law Appellate Tribunal (NCLAT) rejected the contention raised by the corporate debtor. It was alleged by the corporate debtor that the account had been declared Non- Performing Asset (NPA) on 31 March 2013.

It was further contended that since the application under Section 7 of IBC had been filed on 27 August 2018 i.e. after almost five years and five months from the date of accrual of the cause of action, the application that was filed by a financial creditor is barred by limitation.

The Appellate Tribunal held that the financial creditor, had bona fide, within the period of limitation, initiated proceedings against the Corporate Debtor under the SARFAESI Act and was thus entitled to exclusion of time under Section 14(2) of the Limitation Act.

An appeal was filed before the Top Court against the said order and it dealt with two issues-

- Whether delay can be condoned u/s 7 of the IBC beyond in the absence of an application for condonation of delay made by the applicant u/s 5 of the Limitation Act, 1963?

- Whether Section 14 of the Limitation Act is applicable to an application filed under Section 7 of the IBC?

- Whether the exclusion of time under Section 14 of the Limitation Act is available; only in the case where the proceeding terminates before the wrong forum?

The SC bench noted that Section 238A of the IBC deals with 'limitation' and it provides that the provisions of the Limitation Act shall apply to proceedings before the NCLT and the NCLAT.

The Court further noted that according to the general practice a formal application under Section 5 of the Limitation Act, 1963 is filed to enable the Court or Tribunal to weigh the sufficiency of the cause for the inability of the appellant/applicant to approach the Court/Tribunal within the time prescribed by limitation.

The Apex Court clarified that "There is no bar to exercise by the Court/Tribunal of its discretion to condone the delay, in the absence of a formal application."

It stated that all the provisions of the Limitation Act apply to proceedings before the NCLT/NCLAT, to the extent feasible. It added that substantive provisions of Section 14(1),(2), and (3) do not provide that Section 14 can only be invoked on termination of the earlier proceedings, prosecuted in good faith.

The Court while discussing the scope and ambit of proceedings under the IBC before the NCLT/NCLAT clarified that the term 'Court' in Section 14(2) of the Limitation Act implies to any forum for a civil proceeding that shall also include Tribunals or Forums under the SARFAESI Act.

The Top Court said, "If in the context of proceedings under Section 7 or 9 of the IBC, Section 14 were to be interpreted with rigid and pedantic adherence to its literal meaning, to hold that only civil proceedings in Court would enjoy exclusion, the result would be that an applicant would not even be entitled to exclusion of the period of time spent in bona fide invoking and diligently pursuing an earlier application under the same provision of IBC, for the same relief, before an Adjudicating Authority, lacking territorial jurisdiction."

The Apex Court concluded that Section 14 of the Limitation Act excludes the time spent in proceeding in a wrong forum that is unable to entertain the proceedings for want of jurisdiction, or other such cause.

It added that where such proceedings have terminated then the outer limit to claim exclusion under the said provision of the Limitation Act would be the date on which the proceedings are terminated.