The National Company Law Appellate Tribunal Principal Bench, New Delhi (hereinafter referred to as “the Appellate Tribunal”), in the case of S.M. Ghogbhai v. Schedulers Logistics India Pvt. Ltd. Company Appeal (AT) Insolvency No. 281 of 2022, held that Article 1 of the Limitation Act, 1963 is not applicable on the Application filed under Section 9 of the Insolvency & Bankruptcy Code 2016 (hereinafter referred to as “the I&B Code”).
FACTS
S.M. Ghogbhai (hereinafter referred to as “the Appellant“) and Schedulers Logistics India Pvt. Ltd. (hereinafter referred to as “the Respondent“) were engaged in providing transport services.
The Respondent defaulted in the payment for which the Appellant issued a Demand Notice under Section 8 of the I&B Code dated 08.03.2019, requesting payment of an overdue debt of Rs. 76,04,050/- (Rupees Seventy-Six Lakh Four Thousand Fifty only).
The Respondent vide reply denied all the allegations of the Appellant along with the outstanding payment. Thus, the Appellant filed an application under Section 9 of the I&B Code before the National Company Law Tribunal (herein referred to as Adjudicating Authority”) seeking the Corporate Insolvency Resolution Process (hereinafter referred to as “the CIRP“) against the Respondent. The Respondent contested the Appellant’s claim after receiving notice in the Application.
The Adjudicating Authority rejected the application of the Appellant on the grounds that the invoices on the basis of which Section 9 Application is filed are older than 3 years from the date of filing, and thus the Application under Section 9 of the I&B Code is barred by Limitation.
Aggrieved by the order of the Ld. Adjudicating Authority, the Appellant has filed this appeal before the Appellate Tribunal.
ISSUE BEFORE THE APPELLATE TRIBUNAL
Whether Article 1 of Limitations Act, 1963 shall apply to the Application filed under Section 9 of the Code?
CONTENTIONS OF THE PARTIES
The Appellant contended that both the parties were maintaining the running account, which is quite evident from the transactions reflected in their ledger account.
The Appellant submitted that, in the present case, Article 1 of Limitation Act 1963 (herein referred to as “Limitation Act”) is attracted wherein the period of limitation of three years begins from the closure of the year in which the last transaction was made. Thus, herein the period of limitation begins on 31st March 2017, being the closure of the financial year wherein the last transaction was made.
The Appellant further submitted that in the present case, the Application under Section 9 of the I&B Code was filed on 24th October 2019, thus the application was filed within the period of 3 years, thus, it shall not be barred by Limitation Act.
The Appellant states that Article 1 of the Limitation Act applies to Sections 7 and 9 of the I&B Code, and relied upon the decision of the Hon’ble Supreme Court in the case of ‘Sesh Nath Singh Vs. Bidyabati Sheoraphuli Coop. Bank Ltd. (2021) 7 SCC 313 wherein the Supreme Court held that all the provisions of the Limitation Act shall apply to all the proceedings in NCLT/NCLAT, to the extent feasible.
The Respondent contended that; the Appellant failed to submit the contentions on Article 1 of the Limitation Act before the Adjudicating Authority and the submissions were limited to pertaining to only 174 invoices.
The Respondent submitted that, in the present case, Article 1 of the Limitation Act cannot be applicable as the Article 1 of the Limitation Act pertains to suits relating to accounts, and Application filed under Section 9 of the I&B Code cannot be considered as a suit relating to the accounts.
The Respondent relied upon Article 137 of the Limitation Act and stated that it is a settled proposition of law that filing an application under Section 9 of the I&B Code is to be decided as per Article 137 of the Limitation Act.
DECISION AND FINDINGS
The Appellate Tribunal after considering the submissions of both the parties relied upon the decision of the Supreme Court in the case of BK Educational Services Pvt. Ltd. v. Parag Gupta and Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries wherein the Supreme Court held that;
“It is thus clear that since the Limitation Act is applicable to applications filed under Sections 7 and 9 of the Code from the inception of the Code, Article 137 of the Limitation Act gets attracted. “The right to sue”, therefore, accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of the Limitation Act, save and except in those cases where, in the facts of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such application.
The Appellate Tribunal further ruled that; Article 1 of the Limitation Act provides for the provision of Suit in relation to the accounts, wherein in the present case, the application filed under Section 9 of the I&B Code cannot be considered as a suit relating to the accounts.
The Tribunal observed that herein the last payment was made on 26.09.2016 and the last invoice was raised on 10.10.2016, thus, the application under Section 9 of the I&B Code could have been filed within 3 years from the date of the last payment or the date from which the Respondent refrained from paying the payment.
The Tribunal held that; in light of Article 137 of the Limitation Act, the period of limitation begins from “when the right to apply accrues” i.e. the right to apply accrues when invoices remained unpaid by the Respondent.
However, in the present case, the invoices on the basis of which the Application under Section 9 of the Code was filed are earlier than 3 years from the date of filing of Section 9 Application. Thus, Tribunal upheld the order of Adjudicating Authority as held that the application filed by the Appellant under Section 9 of the I&B Code is barred by the Limitation Act.
AMLEGALS REMARKS
The present decision has retreated from the position of the Limitation Act and the I&B Code. In the general law limitation period plays an essential role in outlining the time limit within which a creditor can chase a debtor for outstanding debts.
It provides a safety net in the form of a specific time frame within which a creditor can file a suit in a court for recovery of debt; in the absence of the same, a creditor may file a suit for the cause of action occurred long back and the lackadaisical nature of the creditor in filing the suit of recovery debars him from recovering any claim made by him, and the Court of law has upheld the same in many cases.
The Tribunal in the present case noted that only Article 137 of the Limitation Act applies in order to calculate the limitation period for filing of Application under Section 9 of the I&B Code. It also stated that Article 1 of the Limitation Act, 1963 is not attracted in case of an application under Section 9 of the I&B Code, under which the Appellant requested the payment of overdue debt.
The present decision by the Tribunal sets a positive precedent for the matter that may involve the similar issue of the limitation period while also protecting the debtors from an invalid claim arising within the code and reiterating the limitation period for a creditor for filing claims for debt recovery.
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