Summary
A gas supplier filed a Section 9 IBC application in 2018 against Shah Alloys for gas dues unpaid since 2011–2012, a period when Shah Alloys was a sick company before the BIFR. The NCLT and NCLAT dismissed it as time-barred and on the ground of a pre-existing dispute. The Supreme Court held that a Section 9 application is governed by Article 137 of the Limitation Act, with time running from the date of default and not from the IBC's commencement. Section 22(5) of SICA does not itself extend the time. But the statutory bar under Section 22(1) of SICA, which stopped creditors from suing a sick company, is sufficient cause to condone delay under Section 5, and the tribunals should have considered it. The appeal still failed because the debtor had disputed shortfall in supply and losses before the demand notice. The parties were left to their pending arbitration.
Issues
- Whether, in computing limitation for an application under Section 9 of the IBC, the period during which the operational creditor's remedy was suspended under Section 22(1) of SICA can be excluded under Section 22(5) of SICA.
- Whether the corporate debtor raised a pre-existing dispute warranting rejection of the Section 9 application.
Provisions considered
- Sections 22(1) and 22(5), Sick Industrial Companies (Special Provisions) Act, 1985Following KSL & Industries, the bar covered proceedings that could lead to recovery from the sick company's properties, including arbitration; the period of suspension may be urged as sufficient cause for condonation, as the IBC provides no express exclusion. (¶¶ 8.1, 8.2, 12, 13, 14, 15, 25)
- Sections 8, 9 and 238A, Insolvency and Bankruptcy Code, 2016Article 137 of the Limitation Act governs Section 9 applications; time runs from default, not from 01.12.2016, and is extendable only under Section 5 (B.K. Educational Services, Babulal Vardharji Gurjar, Sagar Sharma). (¶¶ 18, 19, 20, 21, 22, 23, 24)
- Sections 8(2)(a) and 9(5)(ii)(d), Insolvency and Bankruptcy Code, 2016A plausible dispute existing before receipt of the demand notice requires rejection of the application (Mobilox, Macquarie Bank, Innoventive). (¶¶ 30, 31, 32)
Held
- The respondent having been declared sick in 2010 and its BIFR case pending until SICA's repeal on 01.12.2016, the appellant could not proceed against it under Section 22(1); the substituted Section 4(b) of the SICA Repeal Act gives a 180-day window only to the sick company, while other parties are governed by the IBC's limitation regime. (¶¶ 14, 15, 16, 17)
- Limitation for a Section 9 application runs from default under Article 137 and is extendable only under Section 5; where a creditor was statutorily barred by Section 22(1) of SICA, that is sufficient cause for condonation, and the Adjudicating Authority must consider condonation once an application is found beyond time. (¶¶ 23, 24, 25, 26)
- The respondent's letter of 04.01.2013 alleging losses from abrupt disconnection, the BIFR record showing only that reconciled dues would be included in a draft scheme that never materialised, and its later damages suit disclosed a plausible pre-existing dispute, so the rejection on that ground was not perverse; remand on limitation was therefore unnecessary. (¶¶ 34, 35, 36, 37, 38, 39)
Result
Civil Appeal No. 1669 of 2020 against the NCLAT judgment dated 19.12.2019 in Company Appeal (AT) (Insolvency) No. 820 of 2019 dismissed, with the parties at liberty to raise all contentions in the pending arbitration, save the legal questions decided.