The Issue Of Insolvency

The Issue Of Insolvency

The Issue Of Insolvency

by September 1, 2017 0 comments

The first part of the debate of the topic : “Are proceedings under insolvency and bankruptcy code, 2016 governed by the provisions of limitation act, 1963”

Recently, in the case of Neelkanth Township and Construction Pvt. Ltd. Vs. Urban Infrastructure Trustees Limited, it has been held by Hon’ble National Company Law Tribunal (NCLAT) that Limitation Act, 1963 is not applicable to the proceedings under Insolvency and Bankruptcy Code, 2016. In the words of Hon’ble NCLAT, “The next ground taken on behalf of the appellant is that claim of the respondent is barred by limitation, as the debenture were matured between the year 2011-2103, is not based on Law. There is nothing on the record that Limitation Act, 2013 is applicable to I & B Code. Learned Counsel for the appellant also failed to lay hand on any provisions of I & B Code to suggest that the Law of Limitation Act, 1963 is applicable. The I & B Code, 2016 is not an Act for recovery of money claim, it relates to initiation of Corporate Insolvency Resolution Process. If there is a debt which includes interest and there is default of debt and having continuous course of action, the argument that claim of money by Respondent is barred by Limitation cannot be accepted.” This judgement passed by Hon’ble NCLAT has raised an interesting question of law for extensive debate and discussion. The question is whether Law of Limitation Act, 1963 is applicable to the proceedings under Insolvency and Bankruptcy Code, 2016, particularly in view of the order dated 23.08.2017, passed by the Hon’ble Supreme Court in civil Appeal No. 10711 of 2017, titled as ‘Neelkanth Township and Construction Pvt. Ltd. vs. Urban Infrastructure Ltd, as under:

“Heard the learned Senior Counsel appearing for the parties. We do not find any reason to interfere with the order dated 11.8.2017 passed by 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 Limitation Act would apply to this proceeding’ open.”

This Article is an attempt to analyse the judgements passed by the Hon’ble National Company Law Tribunal (NCLT) and Hon’ble National Company Law Appellate Tribunal (NCLAT) and judgements of the Hon’ble Supreme Court and reach some conclusion in this regard.

The Insolvency and Bankruptcy Code, 2016 (“IBC” or “The Code”) has been enacted by the Parliament in order to consolidate and amend the laws relating to insolvency and bankruptcy of corporate and individuals. IBC has repealed the Presidency-Town Insolvency Act, 1909 and Provincial Insolvency Act, 1920 and amended several enactments including Companies Act, 2013. The Code aims to re-organization and insolvency resolution of corporate persons, partnership firms and individuals in a time bound manner for maximization of value of assets of such persons, to promote entrepreneurship, availability of credit and balance the interests of all the stakeholders including alteration in order of priority of payment of Government dues, and for matters connected therewith or incidental thereto.

Pursuant to the provisions of section 4 of IBC, matters relating to the insolvency and liquidation of corporate debtors shall be covered under IBC where the minimum amount of the default of debt occurred by corporate debtor is rupees one lakh. However, the central government may, by notification, specify the minimum amount of default of higher value which shall not be more than rupees one crores. Further pursuant to the provisions of section 6 of the IBC, where any corporate debtor commits a default, a financial creditor, an operational creditor or the corporate debtor itself may initiate corporate insolvency resolution process in respect of such corporate debtor in the manner as provided under the IBC.

Pursuant to the provisions of section 7, 8, 9 and 10 of the Code, an application for initiation of corporate insolvency resolution process can be filed by the financial creditor, operational creditor and corporate debtor, as the case may be, before the Adjudicating Authority in case of default in payment of debt. Pursuant to section 5(1) of IBC, adjudicating authority for the purpose of insolvency resolution and liquidation for corporate persons means National Company Law Tribunal (NCLT) constituted under section 408 of the Companies Act, 2013. The provisions of section 7, 8, 9 and 10 of the IBC read with Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016, provide the process for filing of application for initiation of corporate insolvency resolution process and matter incidental and necessary thereto. However, the IBC is silent on applicability of Limitation Act, 1963 on the proceeding under IBC before the NCLT and various such other issues. Section 60(5)(c) of IBC confers power upon NCLT to entertain or dispose of any question of priorities or any question of law or facts, arising out of or in relation to the insolvency resolution or liquidation proceedings of the corporate debtor or corporate person under the code notwithstanding anything to the contrary contained in any other law for the time being in force. However, such power is, again, subject to the other provisions of the IBC and the Companies Act, 2013 and the rules made there under.

It is evident from the definition of ‘adjudicating authority’ NCLT is the creation of Companies Act, 2013 as the same is constituted under Chapter XXVII, section 408 of the Companies Act, 2013. Accordingly, NCLT is bound by the provisions of Chapter XXVII, section 408 to 434 of the Companies Act, 2013, to the extent the same are not in contradiction of the provisions of IBC. Even section 424 of the Companies Act, 2013, as amended by the provisions of Eleventh Schedule read with section 255 of IBC, provides that the Hon’ble NCLT and NCLAT shall have, for the purpose of discharging its function under the Companies Act, 2013 or under the provisions of IBC, the same powers as are vested in a civil court while trying a suit in respect of certain matter. The text of amended section 424 of the Companies Act, 2013 is as follows:

“424. Procedure before Tribunal and Appellate Tribunal”

(1) The Tribunal and the Appellate Tribunal shall not, while disposing of any proceeding before it or, as the case may be, an appeal before it, be bound by the procedure laid down in the Code of Civil Procedure, 1908, but shall be guided by the principles of natural justice, and, subject to the other provisions of this Act or of Insolvency and Bankruptcy Code 2016 and of any rules made there under, the Tribunal and the Appellate Tribunal shall have power to regulate their own procedure.

(2) The Tribunal and the Appellate Tribunal shall have, for the purposes of discharging their functions under this Act or under the Insolvency and Bankruptcy Code 2016, the same powers as are vested in a civil court under the Code of Civil Procedure, 1908 while trying a suit in respect of the following matters, namely:

(a) summoning and enforcing the attendance of any person and examining him on oath;

(b) requiring the discovery and production of documents;

(c) receiving evidence on affidavits;

(d) subject to the provisions of sections 123 and 124 of the Indian Evidence Act, 1872, requisitioning any public record or document or a copy of such record or document from any office;

(e) issuing commissions for the examination of witnesses or documents;

(f) dismissing a representation for default or deciding it exparte;

(g) setting aside any order of dismissal of any representation for default or any order passed by it exparte; and

(h) any other matter which may be prescribed.

(3) Any order made by the Tribunal or the Appellate Tribunal may be enforced by that Tribunal in the same manner as if it were a decree made by a court in a suit pending therein, and it shall be lawful for the Tribunal or the Appellate Tribunal to send for execution of its orders to the court within the local limits of whose jurisdiction, –

(a) in the case of an order against a company, the registered office of the company is situate; or

(b) in the case of an order against any other person, the person concerned voluntarily resides or carries on business or personally works for gain.

(4) All proceedings before the Tribunal or the Appellate Tribunal shall be deemed to be judicial proceedings with in the meaning of sections 193 and 228, and for the purposes of section 196 of the Indian Penal Code, and the Tribunal and the Appellate Tribunal shall be deemed to be civil court for the purposes of section 195 and Chapter XXVI of the Code of Criminal Procedure, 1973.” From the above provisions it is clear that the Hon’ble NCLT and NCLAT, while dealing with any proceeding under Companies Act, 2013 or the IBC, is bound by the other provisions of IBC and even of the Companies Act, 2013 and the Rules framed there under as accepted by the Hon’ble NCLAT in the case of ‘Innovative Industries Ltd. vs. ICICI Bank and Anr and held that “As amended Section 424 of the Companies Act, 2013 is applicable to the proceeding under the I & B Code, 2016, it is mandatory for the adjudicating authority to follow the Principles of rules of natural justice while passing an order under I&B Code, 2016. Further, as Section 424 mandates the ‘Tribunal’ and ‘Appellate Tribunal’, to dispose of cases or appeal before it subject to other provisions of the Companies Act, 2013 or I & B Code 2016 such as, Section 420 o the Companies Act 2013 was applicable and to be followed by the Adjudicating Authority.”

The relevant para of the aforesaid judgement is as follows

“The learned Judges appear to have failed to notice that the delay in these petitions was more than the delay in the petition made in Bhailal Bhai’s case out of which Civil Appeal No. 362 of 1962 has arisen. On behalf of the respondents petitioners in these appeals (C.A. Nos. 861 to 867 of 1962) Mr. Andley has argued that the delay in these cases even is not such as would justify refusal of the order for refund. He argued that assuming that the remedy of recovery by action in a civil court stood barred on the date these applications were made that would be no reason to refuse relief under Art. 226 of the Constitution. Learned counsel is right in his submission that the provisions of the Limitation Act do not as such apply to the granting of relief under Art. 226. It appears to us however that the maximum period fixed by the legislature as the time within which the relief by a suit in a civil court must be brought 134-159 S.C. 18 may ordinarily be taken to be a reasonable standard by which delay in seeking remedy under Art. 226 can be measured. The Court may consider the delay unreasonable even if it is less than the period of limitation prescribed for a civil action for the remedy but where the delay is more than this period, it will almost always be proper for the court to hold that it is unreasonable.

The period of limitation prescribed for recovery of money paid by mistake under the Limitation Act is three years from the date when the mistake is known. If the mistake was known in these cases on or shortly after January 17, 1956 the delay in making these applications should be considered unreasonable. If, on the other hand, as Mr. Andley seems to argue, the mistake was discovered much later, this would be a controversial fact which cannot conveniently be decided in writ proceedings. In either view of the matter we are of opinion the orders for refund made by the High Court in these seven cases cannot be sustained.”

In view of the above discussion and analysis, the judgements passed by the Hon’ble Supreme Court of India and the Hon’ble NCLT, Principal Bench, it will be more appropriate to take a view that pro- visions of Limitation Act, 1963 shall apply to the proceeding under IBC by virtue of section 433 of the Companies Act, 2013, since NCLT and NCLAT are the creation of the Companies Act, 2013 and hence will be governed by the relevant provisions of the Companies Act, 2013, to the extent the same are not in in consistence (section 238) with the provisions of IBC, particularly since the IBC is not silent on the aspects of limitation.

– By Dr Uk chaudhary

 

 

 

 

 

 

 

 

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