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IBC- Article 137 Limitation Act Applies To Section 7 Applications; Not Article 62: SC [Read Judgment]

Ashok Kini
24 Sep 2019 12:11 PM GMT
IBC- Article 137 Limitation Act Applies To Section 7 Applications;  Not Article 62: SC [Read Judgment]
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"Article 62 would only apply to suits. "An application" which is filed under Section 7, would fall only within the residuary article 137."
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The Supreme Court has held that Article 62 of the Limitation Act would only apply to suits and not to "an application" which is filed under Section 7 of the Insolvency and Bankruptcy Code, which would fall only within the residuary Article 137.

The bench of Justice Rohinton Fali Nariman, Justice R. Subhash Reddy and Justice Surya Kant was considering an appeal against the NCLT order [upheld by NCLAT] that admitted a Section 7 application on the ground that, as per article 62, the limitation period was 12 years from the date on which the money sued has become due. Before NCLT, a Section 7 application was filed seeking to recover the original debt together with interest which now amounted to about 124 Crores of rupees. 

Challenging this order, it was contended before the Apex Court [in Gaurav Hargovindbhai Dave Vs. Asset Reconstruction Company (India) Ltd.] that Article 137 being a residuary article would apply on the facts of this case, and as right to sue accrued only on and from 21.07.2011, three years having elapsed since then in 2014, the Section 7 application filed in 2017 is clearly out of time. Countering this argument, it was urged that IBC being a commercial Code, a commercial interpretation has to be given so as to make the Code workable.

Both sides referred to the Judgment of the Apex Court in B.K. Educational Services Private Limited vs. Parag Gupta and Associates. Answering the issue, the bench observed:

Having heard the learned counsel for both sides, what is apparent is that Article 62 is out of the way on the ground that it would only apply to suits. The present case being "an application" which is filed under Section 7, would fall only within the residuary article 137. As rightly pointed out by learned counsel appearing on behalf of the appellant, time, therefore, begins to run on 21.07.2011, as a result of which the application filed under Section 7 would clearly be time-barred.

As per Article 137, the limitation period is three years and it runs from the time when the application for right to apply accrues.

The court also observed that the Report of the Insolvency Law Committee itself has stated that the intent of the Code could not have been to give a new lease of life to debts which are already time-barred.

With regard to the contention based on 'commercial interpretation', Justice Nariman said:

Further, it is not for us to interpret, commercially or otherwise, articles of the Limitation Act when it is clear that a particular article gets attracted. It is well settled that there is no equity about limitation - judgments have stated that often time periods provided by the Limitation Act can be arbitrary in nature.

Click here to Read/Download Judgment


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