Sesh Nath Singh & Anr. Vs. Baidyabati Sheoraphuli Co-Operative Bank Ltd. and Anr.

Case Number: Civil Appeal No. 9198 of 2019

Judges Name: Hon’ble Judges Indira Banerjee J, Hemant gupta J, 

Order dated: 22.03.2021

“The Court can condone delay at its discretion, in the absence of a formal application for delay condonation under Section 5.”

Facts of the Case:

  • The appeal was filed under Section 62 of the Insolvency and Bankruptcy Code 2016, hereinafter referred to as the ‘IBC’, is against a judgment and order dated 22nd November 2019, passed by the National Company Law Appellate Tribunal (NCLAT), dismissing Company Appeal (AT) (Insolvency) No.672 of 2019, filed by the Appellants, challenging an order dated 25th April 2019, of the National Company Law Tribunal (NCLT), Kolkata Bench, admitting the application filed by the Respondent No.1 as Financial Creditor, under Section 7 of the IBC being CP(IB) No.1202/KB/2018, thereby initiating the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, Debi Fabtech Private Ltd. 
  • The Corporate Debtor was inter alia engaged in the business of export of textile and garments. On or about 8th February 2012, the Corporate Debtor requested the Financial Creditor for cash credit facility of Rs.1,00,00,000/- (Rupees One Crore). By a letter of sanction dated 15th February, 2012, the Financial Creditor granted Cash Credit Facility of Rs.1,00,00,000/- to the Corporate Debtor, after which a Cash Credit Account No.482 was opened in the name of the Corporate Debtor. The Corporate Debtor duly executed a hypothecation agreement with the Financial Creditor on 17th February, 2012. According to the Financial Creditor, in May 2012 itself the Corporate Debtor defaulted in repayment of its debt to the Financial Creditor, in terms of cash credit facility granted by the Financial Creditor to the Corporate Debtor. The said Cash Credit Account No.482 became irregular. The Financial Creditor declared the said Account of the Corporate Debtor a Non Performing Asset (NPA) on 31st March 2013. 
  • On or about 18th January 2014, the Financial Creditor issued notice to the Corporate Debtor under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 hereinafter referred to, in short as the ‘SARFAESI Act’, calling upon the Corporate Debtor to discharge in full, its outstanding liability of Rs.1,07,88,536.00 inclusive of interest as on 28.09.2013 to the Financial Creditor within sixty days from the date of notice, failing which action would be taken under Section 13(4) of the said Act. The Corporate Debtor made a representation dated 3.3.2014 to the Financial Creditor under Section 13(3A) of the SARFAESI Act objecting to the notice under Section 13(2) of the SARFAESI Act. 
  • By a letter dated 15th July 2014, the Financial Creditor rejected the aforesaid representation of the Corporate Debtor and once again requested Corporate Debtor to clear the outstanding amount of Rs.1,07,88,536.00 as claimed in the notice dated 18th January 2014 under Section 13(2) of the SARFAESI Act, within 15 days from the date of receipt of the said letter, with further interest and other charges till date of payment and to regularize the Cash Credit Account No.482 in order to avail better services from the Financial Creditor. 
  • On 13th December 2014, the Financial Creditor issued a notice being Ref No. HC/1180/14-15 dated 13.12.2014 to the Corporate Debtor under Section 13(4)(a) of the SARFAESI Act, calling upon the Corporate Debtor to handover peaceful possession of the secured immovable assets as detailed in the schedule, failing which the Financial Creditor would be forced to seek the assistance of the District Magistrate, Hooghly for taking possession of the aforesaid secured assets. 
  • On or about 19th December 2014, the Corporate Debtor filed writ application in the Calcutta High Court under Article 226 of the Constitution of India being W.P. No.33799 (W) of 2014 inter alia challenging the said notices issued by the Financial Creditor under Section 13(2) and 13(4) of the SARFAESI Act. 
  • While the said writ petition was pending in the High Court, the Authorized Officer of the Financial Creditor issued a notice dated 24th December 2014, notifying the Corporate Debtor, the guarantors and the public in general, that the Authorized Officer of the Financial Creditor had taken possession of the secured assets of the Corporate Debtor, as specified in the Schedule to the said notice, on 24th December 2014, under Section 13(4) of the SARFAESI Act. 
  • On 11th May 2017, the District Magistrate Hooghly issued an order under the SARFAESI Act for possession by the Financial Creditor of the assets of the Corporate Debtor hypothecated to the Financial Creditor. On 24th July 2017, the High Court passed an interim order restraining the Financial Creditor from taking steps against the Corporate Debtor under the SARFAESI Act until further orders. The High Court was of the prima facie view that the Financial Creditor being a Cooperative Bank, it could not invoke the provisions of the SARFAESI Act. It appears that the Writ Petition is still pending consideration in the High Court. 
  • On or about 10th July 2018, the Financial Creditor filed an application in the Kolkata Bench of NCLT for initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor under Section 7 of the IBC. Notice of the petition under Section 7 of the IBC was duly served on the Corporate Debtor. The Corporate Debtor appeared through one Sesh Nath Singh, being the Appellant No.1, and opposed the petition. On behalf of the Corporate Debtor, it was contended that the Writ Petition filed by the Corporate Debtor, challenging the maintainability of the proceedings under the SARFAESI Act, was pending adjudication in the High Court. 
  • The maintainability of the application under Section 7 of IBC was also opposed before the NCLT, on the purported ground that a Special Officer had been appointed as Administrator over the Financial Creditor, only to hold elections. Such Special Officer could not, therefore, initiate any proceeding on behalf of the Financial Creditor. The Corporate Debtor did not oppose the application under Section 7 of the IBC in the NCLT on the ground of the same being barred by limitation. By an order dated 25th April 2019, the Kolkata Bench of NCLT admitted the application filed by the Financial Creditor under Section 7 of IBC, initiated the CIRP, appointed Mr. Animesh Mukhopadhyay as Insolvency Resolution Professional (IRP) and declared a moratorium for the purposes referred to under Section 14 of the IBC. 
  • Being aggrieved by the order dated 25th April, 2019 passed by the Kolkata Bench of NCLT, the Corporate Debtor filed an appeal before the NCLAT under Section 61 of the IBC, contending that the application filed by the Financial Creditor should not have been entertained, the same being barred by limitation. 
  • It was only in appeal before the NCLAT, that the Corporate Debtor, for the first time contended, that the account of the Corporate Debtor had been declared NPA on 31st March, 2013 whereas the application under Section 7 of IBC had been filed on 27th August, 2018, after almost five years and five months from the date of accrual of the cause of action, and was therefore barred by limitation. After considering the submissions of learned counsel, the NCLAT dismissed the appeal, with the observation that the ground of limitation had been taken by the Corporate Debtor for the first time, in the appeal. There was no finding of the Adjudicating Authority on this issue.

Issue:

Whether delay beyond three years in filing an application under Section 7 of IBC can be condoned, in the absence of an application for condonation of delay made by the applicant under Section 5 of the Limitation Act, 1963?

Whether Section 14 of the Limitation Act, 1963 applies to applications under Section 7 of the IBC? If so, is the exclusion of time under Section 14 is available, only after the proceedings before the wrong forum terminate?

Supreme Court held:

  • The Supreme Court held that there is no bar to exercise by the Court/Tribunal of its discretion to condone delay, in the absence of a formal application under Section 5 for condonation of delay. It was further said that Section 5 of the Limitation Act, 1963 does not speak of any application but the impugned Section enables the Court to admit an application or appeal if the applicant or the appellant, as the case may be, if it satisfies the Court that he had sufficient cause for not making the application and/or preferring the appeal, within the time prescribed. The Court said that a plain reading of Section 5 of the Limitation Act makes it amply clear that, it is not mandatory to file an application in writing before relief can be granted under the said section. Had such an application been mandatory, Section 5 of the Limitation Act would have expressly provided so. Section 5 would then have read that the Court might condone delay beyond the time prescribed by limitation for filing an application or appeal, if on consideration of the application of the appellant or the applicant, as the case may be, for condonation of delay, the Court is satisfied that the appellant/applicant had sufficient cause for not preferring the appeal or making the application within such period. Alternatively, a proviso or an Explanation would have been added to Section 5, requiring the appellant or the applicant, as the case may be, to make an application for condonation of delay. The Court further said that the Courts/forum can always insist that an application or an affidavit showing cause for the delay be filed but no applicant or appellant can claim condonation of delay under Section 5 of the Limitation Act as of right, without making an application. 
  • The Supreme Court further held that Section 238A of IBC makes the provisions of the Limitation Act applicable to proceedings under the IBC before the Adjudicating authority and the Appellate Authority (NCLAT) ‘as far as may be’. The IBC does not exclude the application of Section 6 or 14 or 18 or any other provision of the Limitation Act to proceedings under the IBC in the NCLT/NCLAT. All the provisions of the Limitation Act are applicable to proceedings in the NCLT/NCLAT, to the extent feasible. Therefore, in light of above, Section 14 of the Limitation Act, 1963 applies to applications under Section 7 of the IBC.
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