NCLAT held that the limitation period under the IBC began from the date of default and that the pendency of recovery proceedings does not extend the limitation period.
The National Company Law Appellate Tribunal (NCLAT), New Delhi Bench comprising Justice Rakesh Kumar Jain (Judicial Member) and Technical Members Mr. Naresh Salecha Mr. Indevar Pandey reviewed an appeal and held that the period of limitation for filing an application under Section 7 of the IBC begins from the date of default or NPA classification and not from the enactment of the IBC. It further ruled that the pendency of recovery proceedings before the DRT does not constitute a continuous cause of action, and any delay beyond the prescribed three-year period under Article 137 of the Limitation Act can only be condoned if sufficiently justified.
The National Company Law Appellate Tribunal (NCLAT) adjudicated an appeal concerning the initiation of the Corporate Insolvency Resolution Process (CIRP) under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC). The Oriental Bank of Commerce (OBC) had filed an application before the National Company Law Tribunal (NCLT), Chandigarh, against M/s Walia Traders Limited (Corporate Debtor), seeking resolution of an outstanding debt amounting to Rs. 31.42 crore as of 31.12.2018. The loans were disbursed on 26.03.2012, and the account was classified as a Non-Performing Asset (NPA) on 30.09.2014, with the date of default recorded as 30.06.2014. During the pendency of the application, Punjab National Bank (PNB) filed an intervention, seeking substitution in place of OBC due to the latter’s amalgamation with PNB effective from 01.04.2020.
PNB further filed an application under Section 5 of the Limitation Act, 1963, seeking condonation of a 493-day delay in filing the Section 7 petition. The bank contended that it initially believed the application was within the limitation period, as the pendency of recovery proceedings before the Debt Recovery Tribunal (DRT) under the Recovery of Debts and Bankruptcy Act, 1993, constituted a continuous cause of action. However, following a Supreme Court ruling clarifying that the limitation period begins from the date of default and not from the enforcement of IBC or the pendency of recovery proceedings, PNB sought condonation of the delay.
The NCLT, while acknowledging that Section 5 of the Limitation Act applies to applications under Section 7 of the IBC, relied on the Supreme Court’s decision in B.K. Educational Services Private Limited v. Parag Gupta and Associates, REEDLAW 2018 SC 10542, which held that an application filed beyond three years from the date of default is barred unless the delay is satisfactorily explained. The Tribunal rejected PNB’s argument that limitation commenced from 01.12.2016 when IBC came into force and further ruled that the pendency of recovery proceedings under the SARFAESI Act, 2002, did not extend the limitation period. The Tribunal emphasized that delay cannot be condoned solely on equitable or sympathetic grounds without a convincing explanation.
The NCLAT upheld the NCLT’s findings, dismissing the appeal on the grounds that the delay in filing the application was not justifiably explained. The Tribunal found no merit in the appellant’s argument that limitation should be calculated from the date of enactment of IBC and reiterated that limitation for a financial creditor commences from the date of NPA declaration. Consequently, I.A. No. 24 of 2021 was dismissed, and the main insolvency petition was declared time-barred. With no substantial grounds for interference, the appeal was dismissed with no costs imposed.
Mr. Paritosh Budhiraja and Ms. Divya Singh, Advocates represented the Appellant.
Mr. Anand Chibber, Sr. Advocate and Ms. Henna Singh, Advocate appeared for the Respondent.
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