Whether the limitation act applies on I & B code

It is known that I & B Code came into effect from 01.12.2016.Since, I & B Code was introduced, there has been dispute as to whether I & B Code can override Limitation Act in absence of any specific provision of limitation incorporated therein.

Issue – Whether the limitation act applies on I & B code or not?

NATIONAL COMPANY LAW TRIBUNAL

In the case of M/s. Deem Roll-Tech Limited v. M/s. R.L. Steel & Energy Ltd. (31.03.2017), wherein the Principal Bench had taken a view that the period of limitation would be applicable as the claim made by the Operational Creditor was barred by limitation and was being made after the expiry of period of 3 years.

In NEELKANTH TOWNSHIP & CONSTRUCTION PVT LTD V. URBAN INFRASTRUCTURE TRUSTEES LTD.

CONTENTION BY CORPORATE DEBTOR ON LIMITATION (BEFORE NCLT AND NCLAT)

The 3 years limitation period for seeking remedy for the debenture certificates has already expired since the date of its maturity as the debt is related to years 2011, 2012 and 2013.

NATIONAL COMPANY LAW TRIBUNAL

NCLT vide its order dated 25.04.2017 in its order categorically dealt on limitation that since the debtor company is a private limited company and for these OCDs cannot be transferred like in a public company. And further a non-payment on its maturity takes away its marketable nature and does not require a stamp duty.

Question of time-barred debts is ‘ex-facie’ and therefore such argument is baseless. It need not be profoundly said that admission appearing in the financial statement is an acknowledgement covered by S.18 of Limitations Act. It is ‘in-rem’ in nature and construed as existence of debt.

NATIONAL COMPANY LAW APPELLATE TRIBUNAL

The NCLAT gave a categorical finding on limitation as below:

“There is nothing on record that Limitation Act, 2013*( 1963) is applicable to I & B Code 2016 and debtor failed to lay hand as to what provision which suggests such applicability. Learned Counsel for the appellant also failed to lay hand on any of the provision of I & B code to suggest that the Law of Limitation Act, 1963 is applicable. The IB Code, 2016 is not an Act for recovery of money claim, it related to initiation of Corporate Insolvency Resolution Process. If there is a debt which includes interest and there is default and having continuous course of action, the argument that the claim of money by Respondent is barred by limitation cannot be accepted.”

SUPREME COURT

It held that:

“We do not find any reason to interfere with the order dated 11.08.2017 passed by the National Company Law Appellate Tribunal, New Delhi.”

In view of this, we find no merit in the appeal. Accordingly, the appeal is dismissed keeping the question of law viz. whether the Limitation Act would apply to this proceeding, open.”

CONCLUSION

The Supreme Court has kept this issue open as it has not given any finding on this.

INTERESTING ASPECT

The Limitation Act was enacted as a guiding factor to put a time frame within which any available legal remedy is to be exercised especially where an enactment is not having any specific provision towards limitation.

It must be noted that Section 3 of Limitation Act, 1963 reads as under;

“3. Bar of limitation

(1) Subject to the provisions contained in sections 4 to 24 (inclusive), every suit instituted, appeal preferred, and application made after the prescribed period shall be dismissed, although limitation has not been set up as a defence.

(2) For the purposes of this Act— (2) for the purposes of this Act—”

(a) a suit is instituted— (a) a suit is instituted—”

(i) in an ordinary case, when the plaint is presented to the proper officer; (i) in an ordinary case, when the plaint is presented to the proper officer;”

(ii) In the case of a pauper, when his application for leave to sue as a pauper is made; and (ii) in the case of a pauper, when his application for leave to sue as a pauper is made; and”

(iii) in the case of a claim against a company which is being wound up by the court, when the claimant first sends in his claim to the official liquidator; (iii) in the case of a claim against a company which is being wound up by the court, when the claimant first sends in his claim to the official liquidator;”

(b) any claim by way of a set off or a counter claim, shall be treated as a separate suit and shall be deemed to have been instituted— (b) any claim by way of a set off or a counter claim, shall be treated as a separate suit and shall be deemed to have been instituted—”

(i) in the case of a set off, on the same date as the suit in which the set off is pleaded; (i) in the case of a set off, on the same date as the suit in which the set off is pleaded;”

(ii) in the case of a counter claim, on the date on which the counter claim is made in court; (ii) in the case of a counter claim, on the date on which the counter claim is made in court;”

(c) An application by notice of motion in a High Court is made when the application is presented to the proper officer of that court.”

The limitation factor has a reference under Section 60(6) and 179(3) of I & B Code, 2016 which are almost similar in wording.

However a quick reference can be made to Section 60(6) as below:

“Notwithstanding anything contained in the Limitation Act or in any other law for the time being in force, in computing the period of limitation specified for any suit or application by or against a corporate debtor for which an order of moratorium has been made under this Part, the period during which such moratorium is in place shall be excluded.”

CRUCIAL FACTORS

Additionally, what will be the outcome by Supreme Court on the possible interpretation finally is not known at this point of time. However, it must be understood that any interpretation shall be subjected to the following crucial factors as well:

It is also a fact that all enactments are prospective in its applicability unless the intent and object of the legislation is to give any retrospective effect.
It is also a trite law that no person can sleep over his/her right and come to Court for a remedy after infinite time.
If any enactment lacks a categorical provision of limitation then it shall be resorted to Limitation Act, 1963 otherwise the Limitation Act will become redundant.

At the same, the insolvency process is an independent process with different objective and can be initiated at any given point of time. But, the proceedings and passing the bar of limitation shall be dependent upon further 3 legs as below:

1st Leg of Claim – Section 3(6)

2nd Leg of Debt – Section 3(611)

3rd Leg of Default – Section 3(12)

These need to be read together as well while concluding on any aspect including limitation if it is to be made applicable.

Though there cannot be a blanket no for applicability of limitation on I & B Code, 2016 but all factors have to be read, understood, analyzed and implemented to carry out the harmonious object and intent of the legislation

Hence, it may be in the totality of provisions as stated above, the question of applicability of Limitation Act, 1963 on I & B Code,2016 must have been kept open in Neelkanth Township and Construction Pvt. Ltd. by the Supreme Court.

Whether the limitation act applies on I & B code

It is known that I & B Code came into effect from 01.12.2016.Since, I & B Code was introduced, there has been dispute as to whether I & B Code can override Limitation Act in absence of any specific provision of limitation incorporated therein.

Issue – Whether the limitation act applies on I & B code or not?

NATIONAL COMPANY LAW TRIBUNAL

In NEELKANTH TOWNSHIP & CONSTRUCTION PVT LTD V. URBAN INFRASTRUCTURE TRUSTEES LTD.

CONTENTION BY CORPORATE DEBTOR ON LIMITATION (BEFORE NCLT AND NCLAT)

The 3 years limitation period for seeking remedy for the debenture certificates has already expired since the date of its maturity as the debt is related to years 2011, 2012 and 2013.

NATIONAL COMPANY LAW TRIBUNAL

Question of time-barred debts is ‘ex-facie’ and therefore such argument is baseless. It need not be profoundly said that admission appearing in the financial statement is an acknowledgement covered by S.18 of Limitations Act. It is ‘in-rem’ in nature and construed as existence of debt.

NATIONAL COMPANY LAW APPELLATE TRIBUNAL

The NCLAT gave a categorical finding on limitation as below:

SUPREME COURT

It held that:

“We do not find any reason to interfere with the order dated 11.08.2017 passed by the National Company Law Appellate Tribunal, New Delhi.”

In view of this, we find no merit in the appeal. Accordingly, the appeal is dismissed keeping the question of law viz. whether the Limitation Act would apply to this proceeding, open.”

CONCLUSION

The Supreme Court has kept this issue open as it has not given any finding on this.

INTERESTING ASPECT

The Limitation Act was enacted as a guiding factor to put a time frame within which any available legal remedy is to be exercised especially where an enactment is not having any specific provision towards limitation.

It must be noted that Section 3 of Limitation Act, 1963 reads as under;

“3. Bar of limitation

(1) Subject to the provisions contained in sections 4 to 24 (inclusive), every suit instituted, appeal preferred, and application made after the prescribed period shall be dismissed, although limitation has not been set up as a defence.

(2) For the purposes of this Act— (2) for the purposes of this Act—”

(a) a suit is instituted— (a) a suit is instituted—”

(i) in an ordinary case, when the plaint is presented to the proper officer; (i) in an ordinary case, when the plaint is presented to the proper officer;”

(ii) In the case of a pauper, when his application for leave to sue as a pauper is made; and (ii) in the case of a pauper, when his application for leave to sue as a pauper is made; and”

(b) any claim by way of a set off or a counter claim, shall be treated as a separate suit and shall be deemed to have been instituted— (b) any claim by way of a set off or a counter claim, shall be treated as a separate suit and shall be deemed to have been instituted—”

(i) in the case of a set off, on the same date as the suit in which the set off is pleaded; (i) in the case of a set off, on the same date as the suit in which the set off is pleaded;”

(ii) in the case of a counter claim, on the date on which the counter claim is made in court; (ii) in the case of a counter claim, on the date on which the counter claim is made in court;”

(c) An application by notice of motion in a High Court is made when the application is presented to the proper officer of that court.”

The limitation factor has a reference under Section 60(6) and 179(3) of I & B Code, 2016 which are almost similar in wording.

However a quick reference can be made to Section 60(6) as below:

CRUCIAL FACTORS

Additionally, what will be the outcome by Supreme Court on the possible interpretation finally is not known at this point of time. However, it must be understood that any interpretation shall be subjected to the following crucial factors as well:

It is also a fact that all enactments are prospective in its applicability unless the intent and object of the legislation is to give any retrospective effect.

It is also a trite law that no person can sleep over his/her right and come to Court for a remedy after infinite time.

If any enactment lacks a categorical provision of limitation then it shall be resorted to Limitation Act, 1963 otherwise the Limitation Act will become redundant.

At the same, the insolvency process is an independent process with different objective and can be initiated at any given point of time. But, the proceedings and passing the bar of limitation shall be dependent upon further 3 legs as below:

1st Leg of Claim – Section 3(6)

2nd Leg of Debt – Section 3(611)

3rd Leg of Default – Section 3(12)

These need to be read together as well while concluding on any aspect including limitation if it is to be made applicable.

Though there cannot be a blanket no for applicability of limitation on I & B Code, 2016 but all factors have to be read, understood, analyzed and implemented to carry out the harmonious object and intent of the legislation

Hence, it may be in the totality of provisions as stated above, the question of applicability of Limitation Act, 1963 on I & B Code,2016 must have been kept open in Neelkanth Township and Construction Pvt. Ltd. by the Supreme Court.

Leave a Reply Cancel Reply