Section 14 Limitation Act Applies To Application Under Section 7 IBC : Supreme Court

24th Mar,2021

Section 14 Limitation Act Applies To Application Under Section 7 IBC : Supreme Court


In an application under Section 7 of the Insolvency and Bankruptcy Code, the applicant may invoke the protection of Section 14 of the Limitation Act in proceedings under the SARFAESI Act, according to the Supreme Court. The time spent litigating before the wrong forum is exempted from the limitation period under Section 14 of the Limitation Act of 1963. Justices Indira Banerjee and Hemant Gupta of the Supreme Court held that Section 14 applies to an application under Section 7 of the IBC, and that there is no provision that the exclusion of time under Section 14 is available only after the proceedings before the wrong forum have concluded.The court also ruled that SAFAESI trials are "civil proceedings" under Section 14 of the Limitation Act. Sesh Nath Singh vs. Baidyabati Sheoraphuli Co-operative Bank Ltd was the case that led to the decision.

FACTUAL BACKGROUND OF THE CASE:
In this case, the National Company Law Appellate Tribunal rejected Corporate Debtor's argument that since the Corporate Debtor's account was declared NPA on March 31, 2013, and since the application under Section 7 of the IBC was filed on August 27, 2018, almost five years and five months after the date of accrual of the cause of action, the application filed by fiduciary was filed in good faith. The NCLAT found that the claimant, a financial creditor, had properly commenced proceedings against the Corporate Debtor under the SARFAESI Act within the statute of limitations and was hence entitled to time exclusion under Section 14(2) of the Limitation Act.

ISSUES OF THE CASE:
i.) In the absence of an application for condonation of delay submitted by the claimant under Section 5 of the Restriction Act, 1963, will a delay of more than three years in filing an application under Section 7 of the IBC be excused?
ii.) Is it true that applications filed under Section 7 of the IBC are subject to Section 14 of the Limitation Act of 1963? If that's the case, should the period be excluded under Section 14 only after the proceedings in the wrong forum have ended?

OBSERVATION OF THE COURT:
The corporate debtor argued that in an application under Section 7 of the IBC, the claimant is not entitled to the benefit of Section 14 of the Limitation Act, 1963 in respect of proceedings under the SARFAESI Act, citing an NCLAT decision in Ishrat Ali v. Cosmos Cooperative Bank Limited and Anr. When it came to the first question, the bench pointed out that Section 238A of the IBC states that the Limitation Act applies to proceedings before the Adjudicating Authority (NCLT) and the NCLAT, to the extent possible. The bench also stated that the IBC does not exclude the application of Sections 6, 14, and 18 of the Limitation Act, as well as any other clause of the Limitation Act, to IBC proceedings in the NCLT/NCLAT. To the degree possible, all aspects of the Limitation Act apply to proceedings in the NCLT/NCLAT, it said.