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Condoning Delay In IBC Sufficient Cause Should Be There

Condoning Delay In IBC Sufficient Cause Should Be There
Introduction

Insolvency and Bankruptcy Code 2016 (IBC) provides that where any Corporate Debtor commits a default, a Financial Creditor, an Operational Creditor or the Corporate Debtor itself may initiate Corporate Insolvency Resolution Process (CIRP) in respect of such Corporate Debtor in the manner provided under Code.

The Provisions of the Code provides that an Operational Creditor may, on the occurrence of default, deliver a demand notice of unpaid of operational debt or copy of an invoice demanding payment of the amount involved in the default to the corporate debtor in such form and manner as may be prescribed.

It is a well settled law that the provisions of the Limitation Act, 1963 are applicable to applications filed for initiation of CIRP against the Corporate Debtor under the Code. It be so, the position is that the period of limitation is three years from the right to apply accrues but the delay is condonable on sufficient grounds.

The period of limitation for filing an application by the Operational Creditor under Section 9, IBC is governed by Section 238 A, IBC which was inserted by way of Amendment and this amendment has been held to be clarificatory by the Hon’ble Supreme Court and hence applicable retrospectively given that the intent of the Code is not to revive timebarred debts.

The Hon’ble Supreme Court has recently in a judgment of Sabarmati Gas Limited V. Shah Alloys Limited has held that the period of limitation for an application for initiating the Corporate Insolvency Resolution Process (CIRP) under Section 9 of the Code would be three years from the date when the right to apply accrues as provided by Article 137 of the Limitation Act and further that the right to apply accrues on the date of default occurs and it is extendable only by the application of Section 5 of the Limitation Act.

One of the question which was raised before the Hon’ble Supreme Court was that whether in computation of the period of limitation in regard to an application filed under Section 9, IBC the period during which the Operational Creditor’s right to proceed against or sue the Corporate Debtor that remain suspended by virtue of Section 22 (1) of the Sick Industrial Companies (Special Provisions Act, 1985) (SICA) can be excluded, as provided under Section 22 (5) of SICA?

The Court while answering the above question took a note of the legal bar for initiation of proceedings against an industrial company by virtue of Section 22 (1), SICA and hold that when a party was legally disabled from resorting to legal proceeding for recovering the outstanding dues without the permission of BIFR, therefore, company was not given the period of suspension of legal proceedings is excludable in computing the period of limitation for the enforcement of such right as per the terms of Section 22(5), SICA.

The Hon’ble Supreme Court, had also clarified that the limitation period for initiating CIRP under Section 9, IBC is to be reckoned from the date of default, and the period prescribed therefore, is three years as provided by Section 137 of the Limitation Act, 1963 and the same would commence from the date of default which is extendable only by application of Condonation of Delay under Section 5 of the Limitation Act, 1963 and it is incumbent on the Adjudicating Authority to consider the claim for condonation of the delay when once the proceeding concerned is found filed beyond the period of limitation

A statutory bar is provided under Section 22 (1) of SICA to any proceeding for realisation of a right referred against an industrial company when once an enquiry under SICA is pending against it or any scheme referred to under Section 17 thereof is under preparation or consideration or a sanctioned scheme is under implementation or where an appeal under Section 25 relating to an industrial company is pending, except with the consent of the Board or the Appellate Authority.

The Hon’ble Supreme Court while interpreted the intention of Section 22 (5) of SICA as to protect the interest of such a party who was prevented from lawfully enforcing the right to seek for recovery of dues during the operative period of the bar under Section 22 (1), SICA, if it is otherwise available even after the conclusion of proceedings before the Board of Industrial and Financial Reconstruction (BIFR), to the extent specifically mentioned therein.

In the absence of provisions for exclusion of such period in respect of an application under Section 9, IBC, despite the combined reading of Section 238A, IBC and the provisions under the Limitation Act a party is to assign the same as a sufficient cause for condoning the delay under Section 5 of the Limitation Act.

Conclusion

The delay caused due to statutory bar in initiating action against Industrial Company for recovering outstanding dues, has to be assigned as a sufficient cause for condoning such delay under Section 5 of the Limitation Act because sufficient cause is the cause for which a party could not be blamed.

About Author

Ashu Kansal

Ashu Kansal is a Partner at Adhita Advisors, having more than fifteen years of experience. His main areas of expertise are banking and finance laws, securitization - related matters, recovery of debts, suits, and arbitration matters. Apart from drafting various pleadings, he also advises/ gives opinions and strategies to clients on various litigation matters in various forums including the Supreme Court, High Courts and various other Tribunals across the Country. He has also briefed top Senior Counsels across the country for multinational clients.

Rachit Mathur

Rachit Mathur is a law graduate from the Delhi Metropolitan Education, Sector 62 Noida. He is actively involved in various litigation matters in various forums including Delhi High Court District Courts and various Tribunals of Delhi. He is currently working as an Associate at Adhita Advisors and have interest in the area of Arbitration and Conciliation, Insolvency and Bankruptcy, Contracts, and Criminal Law.