The Hon’ble Supreme Court of India on October 11, 2018, in the matter of B.K. Educational Services Private Limited v. Parag Gupta (Civil Appeal No.23988 of 2017) has considered the question of applicability of the Limitation Act, 1963 to proceedings under the Insolvency and Bankruptcy Code, 2016 (“Code”) prior to the date on which the Insolvency and Bankruptcy Code (Second Amendment) Act, 2018 came into effect (“Amendment”).

The Amendment inserted Section 238A with effect from June 6, 2018, which reads as follows:

“238A. The provision of the Limitation Act, 1963 shall, as far as may be, apply to the proceedings or appeal before the Adjudicating Authority, the National Company Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal, as the case may be.”

The question before the Court was whether Section 238A of the Code will apply to applications filed under Section 7 or Section 9 of the Code from the inception of the Code and prior to June 6, 2018.

The Court observed that the “Adjudicating Authority” under the Code means the National Company Law Tribunal (“NCLT”) constituted under the Companies Act, 2013. The NCLT is constituted to discharge such powers and functions that are conferred on it under the Companies Act and under any other law for the time being in force. Section 433 of the Companies Act provides that the provisions of the Limitation Act shall, as far as may be, apply to proceedings or appeals before the Tribunal or the Appellate Tribunal as the case may be. In the absence of the expression “under this Act” or “subject to the provisions of this Act” in Section 433, it becomes clear that Section 433 of the Companies Act applies to the NCLT even when it decides applications under Section 7 and 9 of the Code.  

The Hon’ble Supreme Court further observed that the intent of the legislature is found in the Report of the Insolvency Committee, 2018 which specifically stated - “given that the intent was not to package the Code as a fresh opportunity for creditors and claimants who did not exercise their remedy under existing laws within the prescribed limitation period, the Committee thought it fit to insert a specific section applying the Limitation Act to the Code.”  

The Court, after relying on various judgments, held as follows:   

a) Limitation bars the remedy but not the right. Limitation, being procedural in nature, would ordinarily be applied retrospectively, except that the new law of limitation cannot revive a dead remedy. An application that is filed after the Code came into force, cannot revive a debt which is time-barred and is no longer due.  

b) The expression “debt due” in the definition sections of the Code would obviously only refer to debts that are “due and payable” in law i.e., the debts that are not time-barred. 

c) When the expression “due” and “due and payable” occur in Sections 3(11) and 3(12) of the Code, they refer to a “default” which is non-payment of a debt that is due in law, i.e., that such debt is not barred by the law of limitation. 

d) Expression “default” bears the same meaning in Section 7 and Section 8 of the Code, making it clear that corporate insolvency resolution process against a corporate debtor can only be initiated either by a financial or operational creditor in relation to debts which have not become time-barred. 

e) The intention of the legislature, from the very beginning, was to apply the Limitation Act to the NCLT and the NCLAT while deciding applications filed under Section 7 and Section 9 of the Code and appeals. 

f) Section 433 of the Companies Act specifically applies the Limitation Act to the Tribunal and the Appellate Tribunal, including the NCLAT. Insofar as applications or petitions are filed under Section 7 and Section 9 of the Code, NCLAT will decide such applications or petitions on the footings that Limitation Act will apply to the same.  

g) Both Section 433 and Section 238A of the Code apply the provisions of the Limitation Act “as far as may be”. Therefore, where periods of limitation have been laid down in the Code, these period will apply notwithstanding anything to the contrary.  

h) Since the Limitation Act is applicable to applications filed under Section 7 and Section 9 of the Code from the inception of the Code, Article 137 of the Limitation Act is attracted. “The right to sue”, therefore, accrues when a default occurs. If the default has occurred over three years prior to the date of filing the application, the application would be barred by Section 137, except in cases where delay can be condoned under Section 5 of the Limitation Act.