Summary
Punjab National Bank's Section 7 IBC petition against Jailaxmi Sugar Products, whose account became an NPA on 31.03.2013, was admitted by the NCLT. The NCLAT reversed this as time-barred, relying on Babulal Vardharji Gurjar to run limitation from the NPA date. The Supreme Court restored the admission. Following Dena Bank and Kotak Mahindra Bank, a financial creditor may initiate CIRP within three years of a DRT recovery certificate. The DRT had allowed the bank's original application on 01.11.2016, and the debtor later confirmed the balance in 2017, so the October 2019 petition was within time. The Court also noted that a winding-up order against the debtor did not bar the Section 7 petition, and that applying limitation to IBC proceedings sits uneasily with their non-recovery character.
Issues
- Whether a Section 7 IBC petition filed in October 2019 was time-barred where the account became an NPA in 2013 but the DRT allowed the bank's recovery application in November 2016
- Whether Babulal Vardharji Gurjar runs limitation only from the NPA date, notwithstanding a later recovery decree or acknowledgment
Provisions considered
- Sections 7 and 238A, Insolvency and Bankruptcy Code, 2016The Limitation Act applies to Section 7 applications. A default to any financial creditor triggers the right to apply. (¶¶ 6, 8, 24)
- Article 137 and Section 18, Limitation Act, 1963A fresh three-year period runs from the DRT recovery decree, and later acknowledgments may extend limitation. (¶¶ 10, 14, 17)
Held
- Under the Explanation to Section 7(1), the default may be one owed to any financial creditor. The High Court's winding-up order against the corporate debtor itself showed such a default, and did not make the Section 7 petition non-maintainable. (¶¶ 5, 6)
- Once time begins to run, it can be extended only as the Limitation Act provides, for example by an acknowledgment under Section 18. Babulal rested on its own facts, and Vashdeo Bhojwani measured time from the recovery certificate, not the NPA date. Bishal Jaiswal confirmed that Section 18 applies. (¶¶ 10, 12, 13, 14, 15)
- As held in Dena Bank and affirmed in Kotak Mahindra Bank, a financial creditor may initiate CIRP within three years of a recovery certificate issued by the DRT. (¶¶ 15, 16, 17)
- The DRT allowed the bank's application on 01.11.2016, and the debtor confirmed the balance in 2017 and sought restructuring. The petition filed on 10.10.2019 was therefore within three years of the right to apply accruing under Article 137, and the NCLAT erred in relying only on Babulal. (¶¶ 17, 24)
- The Court noted an incongruity: limitation extinguishes remedies in enforcement proceedings, yet the IBC is treated as a non-recovery law for reviving the corporate debtor, where the creditor holds the right and the debtor gets the remedy. (¶¶ 18, 19, 20, 23)
Result
Appeal allowed; the NCLAT's order of 02.03.2021 was set aside and the NCLT's admission of the Section 7 petition stood; no order as to costs.