M/S TECH SHARP ENGINEERS PVT. LTD. versus SANGHVI MOVERS LIMITED

M/S TECH SHARP ENGINEERS PVT. LTD. versus SANGHVI MOVERS LIMITED

Landmark Cases of India / सुप्रीम कोर्ट के ऐतिहासिक फैसले



 REPORTABLE
IN THE SUPREME COURT OF INDIA
CIVIL APPELLATE JURISDICTION
CIVIL APPEAL NO. 296 OF 2020
M/S TECH SHARP ENGINEERS PVT. LTD. ... Appellant
versus
SANGHVI MOVERS LIMITED ... Respondent
J U D G M E N T
Indira Banerjee, J.
This appeal under Section 62 of the Insolvency and Bankruptcy
Code, 2016, hereinafter referred to as the “IBC” is against a judgment
and order dated 23rd July 2019 passed by the National Company Law
Appellate Tribunal (NCLAT), New Delhi allowing Company Appeal (AT)
(Insolvency) No. 118 of 2019 filed by the Respondent and setting aside
an order dated 2nd January 2019 passed by the Adjudicating Authority,
i.e., the National Company Law Tribunal (NCLT), Chennai whereby the
Adjudicating Authority had dismissed an application filed by the
Respondent as barred by limitation.
2
2. Pursuant to an agreement executed by and between the
Appellant and the Respondent, the Respondent let out on hire to the
Appellant, 150 MT crane for erection of equipment at the site of Indian
Oil Corporation Ltd. (IOCL) at Paradip in Odisha. The
Respondent/Operational Creditor raised invoices on the Appellant
between 3rd January 2012 and 4th March 2013 for a sum of
Rs.38,84,709/-.
3. On or about 6th May 2013, the Respondent issued notice to the
Appellant for payment of outstanding hire charges. By letter dated 17th
May 2013, the Appellant replied to the said notice. Further
correspondence ensued.
4. Ultimately, on 14th October 2013, the Respondent issued a
statutory notice to the Appellant under Sections 433(e), 434 and 439 of
the Companies Act, 1956 for Winding Up of the Appellant-Company.
The Appellant duly replied to the notice on 7th November 2013,
acknowledging its liability to the Respondent.
5. On 9th November 2013, the Respondent called upon the
Appellant to clear its dues. On 24th May 2014, the Respondent issued a
statutory notice under Sections 433(e), 434 and 439 of the Companies
Act, 1956 calling upon the Appellant to pay Rs.38,84,709/- towards
crane hire charges.
6. On or about 22nd December 2015, the Respondent filed a Winding
Up petition dated 4th July 2015 in the Madras High Court. On 5th
3
January 2016, the High Court returned the Winding Up petition to the
Respondent for curing of defects. The Winding Up petition was
represented on 3rd February 2016, but again returned on 24th May 2016
with an endorsement to comply with the defects as intimated earlier.
7. The IBC came into force on 1st December 2016. Thereafter the
Respondent issued a demand notice on 14th November 2017 under
Section 8(1) calling upon the Appellant to repay its dues.
8. On 30th March 2018, the Respondent filed petition being CP/724/
(IB)/2018 under Section 9 of the IBC for initiation of the Corporate
Insolvency Resolution Process (CIRP) in the NCLT. On 20th June 2018,
the Adjudicating Authority (NCLT) directed the Registry to issue notice
to the Appellant.
9. By an order dated 2nd January 2019, the Adjudicating Authority
(NCLT) rejected the application as barred by limitation, placing reliance
on the judgment of this Court in B.K. Educational Services Pvt. Ltd.
v. Parag Gupta and Associates
1
. The application under Section 9 of
the IBC was accordingly dismissed.
10. The Respondent appealed to the NCLAT under Section 61 of the
IBC. By the impugned judgment and order, the NCLAT has set aside
the order dated 2nd January 2019 passed by the Adjudicating Authority
(NCLT) rejecting the application of the Respondent under Section 9 of
the IBC and has remitted the case to the Adjudicating Authority for
1 (2019) 11 SCC 633
4
admission after notice to the parties. The NCLAT directed that before
admission of the case, it would be open to the Respondent to settle the
matter with the Appellant. The NCLAT held :-
“8. In the present case, it is not in dispute that right to apply
under Section 9 accrued to the Appellant on 1
st
 December, 2016,
when ‘I&B Code’ came into force. Therefore, we find that the
application under Section 9 filed by the Appellant is within the
period of three years from the date of right to apply accrued.”
11. For the purpose of limitation, the relevant date is the date on
which the right to sue accrues which is the date when a default occurs.
In B.K. Educational Services Pvt. Ltd. (supra), cited before the
NCLT and referred to in the judgment and order impugned, this Court
held :-
“42. It is thus clear that since the Limitation Act is applicable to
applications filed under Sections 7 and 9 of the Code from the
inception of the Code, Article 137 of the Limitation Act gets
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 of the application, the application would be barred
under Article 137 of the Limitation Act, save and except in those
cases where, in the facts of the case, Section 5 of the Limitation
Act may be applied to condone the delay in filing such
application.”
12. In Radha Export (India) Private Ltd. v. K.P. Jayaram and
Anr.
2
, this Court referred to B.K. Educational Services Pvt. Ltd.
(supra) and held the application under Section 7 of the IBC to be barred
by limitation.
13. In Babulal Vardharji Gurjar v. Veer Gurjar Aluminium
Industries Private Ltd. and Anr.
3
, this Court held that limitation of
three years as provided by Article 137 of the Limitation Act, which
2 (2020) 10 SCC 538
3 (2020) 15 SCC 1
5
commenced from the date of the default, was extendable under
Section 5 of the Limitation Act, 1963.
14. It is well settled by a plethora of judgments of this Court as also
different High Courts and, in particular, the judgment of this Court in
B.K. Educational Services Pvt. Ltd. (supra) that the NCLT/NCLAT
has the discretion to entertain an application/appeal after the
prescribed period of limitation. The condition precedent for exercise of
such discretion is the existence of sufficient cause for not preferring
the appeal and/or the application within the period prescribed by
limitation.
15. In Ramlal, Motilal & Chhotelal v. Rewa Coalfields Ltd.
4
, this
Court affirmed the view taken by the Madras High Court in Krishna v.
Chathappan
5
 and held that Section 5 of the Limitation Act gives the
Court a discretion, which is to be exercised in the way in which judicial
power and discretion ought to be exercised, upon principles which are
well understood.
16. The condition precedent for condonation of the delay in filing an
application or appeal, is the existence of sufficient cause. Whether the
explanation furnished for the delay would constitute “sufficient cause”
or not would be dependent upon facts of each case. There cannot be
any straitjacket formula for accepting or rejecting the explanation
furnished by the Appellant/applicant for the delay in taking steps.
4 AIR 1962 SC 361
5 1889 SCC Online Mad 1
6
17. When an appeal is filed against an order rejecting an application
on the ground of limitation, the onus is on the Appellant to make out
sufficient cause for the delay in filing the application. The date of
enforcement of the IBC and/or the date on which an application could
have first been filed under the IBC are not relevant in computation of
limitation. It would be absurd to hold that the CIRP could be initiated
by filing an application under Section 7 or Section 9 of the IBC, within
three years from the date on which an application under those
provisions of the IBC could have first been made before the NCLT even
though the right to sue may have accrued decades ago.
18. The fact that an application for initiation of CIRP, may have been
filed within three years from the date of enforcement of the relevant
provisions of the IBC is inconsequential. What is material is the date
on which the right to sue accrues, and whether the cause of action
continuous.
19. The pendency of the proceedings in a parallel forum, invoked by
the Respondent, is not sufficient cause for the delay in filing an
application under Section 9 of the IBC. By the time the application was
filed, the claim had become barred by limitation.
20. In a notice dated 24th May 2014 issued by the Respondent
demanding payment, it was contended that the Appellant had agreed
to pay its outstanding dues in five equated monthly installments of
Rs.8,48,053/-. The Appellant had, however, defaulted after payment of
one installment for the month of June, 2013. A copy of the petition filed
7
by the Respondent in the High Court of Judicature at Madras is
enclosed to the paper book. The Respondent asserted -
”The Petitioner states that without any valid reason the
Respondent delayed the payment for the Services done by the
petitioner. Even after repeated and constant follow-up the
Responder did not settle the dues payable to the Petitioner and
therefore, the Petitioner issued a notice dated 06.05.2013 and
demanded the Respondent to make the payment. The
Respondent sent a reply dated 17.05.2013 and in the said reply
the Respondent admitted the outstanding dues and agreed to
settle the outstanding dues in six months and requested the
Petitioner to give discount. The Petitioner issued a rejoinder
dated 21.05.2013 providing 10% discount and to settle the
remaining amount in 5 equaled monthly instalment, commencing
from 1
st
 June, 2013. However, it is made clear that the offer given
by rejoinder dated 21.05.2013 is subject to the condition that the
Respondent issue and honour the post-dated cheques for the five
monthly instalments.
The Petitioner states that the Respondent sent a reply dated
07.06.2013 stating that they are unable to pay 1
st
 instalment on
01.06.2013 and informed that the same will be paid on
20.06.2013. The Petitioner sent a sur-rejoinder dated 14.06.2013
and asked the Respondent to proceed with the payment schedule
proposed by them and it is made very clear that the discount and
the waiver of interest offered by the Petitioner is strictly on the
condition that the Respondent adhere to the payment schedule.
The Respondent paid the 1
st
 instalment and failed to make any
further payment and therefore the Petitioner sent a reminder
dated 02.08.2013. The Respondent did not honour their promise
and miserably failed to make payment for the 2
nd
 instalment and
therefore the Petitioner was constrained to revoke their offer and
issued notice dated 14.10.2013 demanding the Respondent to
pay Rs.38,84,709/- (Rupees Thirty Eight Lakhs Eighty Four
Thousand Seven Hundred and Nine only) with interest.
The Petitioner states that the Respondent issued reply dated
07.11.2013 and confirmed the non-payment of instalments as
per their promise and further stated that the Respondent has
requested IOCL to make direct payment to the Petitioner and
also enclose a draft letter to be sent by the Respondent to
IOCL. The Petitioner sent sur re-rejoinder dated 09.11.2013
and informed the Respondent that the discount offered has
been withdrawn due to the failure on the part of the
Respondent. However, considering the request of the
Respondent gave final opportunity to settle the dues in two
instalments and it was made very clear that any failure on the
part of the Respondent to clear dues will result in withdrawal
of discounts/waivers and the Respondent has to pay the entire
amount of Rs.38,84,709/- (Rupees Thirty Eight Lakhs Eighty
Four Thousand Seven Hundred and Nine only).”
8
21. From the averments in the Winding Up petition, it is patently
clear that there was no acknowledgment of liability after 7th November
2013. The last payment was made in June 2013.
22. The Adjudicating Authority (NCLT) held :-
“On perusal of the Application filed under Section 9 of the I&B
Code, 2016, it appears that the claim amounting to
Rs.38,84,709/- has become due and payable on 28.02.2013.
There is a single confirmation of the claim by the Corporate
Debtor on 07.11.2013 as reflects from the document placed at
page 60 of the typed set filed with the Application. Thereafter,
there is nothing on record to suggest that at any point of time the
Corporate Debtor confirmed/acknowledged the debt.
In the circumstances, the claim has become time barred and in
view the judgment of the Hon’ble Supreme Court passed in B.K.
Educational Services Pvt. Ltd. -vs- Parag Gupta and Associates
(2018 SCC Online SC 1921), the Petition stands dismissed.”
23. It is now well settled that the provisions of the Limitation Act are
applicable to proceedings under the IBC as far as may be. Section
14(2) of the Limitation Act which provides for exclusion of time in
computing the period of limitation in certain circumstances, provides
as follows:
“14. Exclusion of time of proceeding bona fide in court
without jurisdiction.—
(1) ...
(2) In computing the period of limitation for any application,
the time during which the applicant has been prosecuting with
due diligence another civil proceeding, whether in a court of
first instance or of appeal or revision, against the same party
for the same relief shall be excluded, where such proceeding is
prosecuted in good faith in a court which, from defect of
jurisdiction or other cause of a like nature, is unable to
entertain it.”
24. Similarly, under Section 18 of the Limitation Act, an
acknowledgment of present subsisting liability, made in writing in
9
respect of any right claimed by the opposite party and signed by the
party against whom the right is claimed, has the effect of commencing
of a fresh period of limitation, from the date on which the
acknowledgment is signed. However, the acknowledgment must be
made before the period of limitation expires.
25. Proceedings in good faith in a forum which lacks jurisdiction or is
unable to entertain for like nature may save limitation. Similarly,
acknowledgment of liability may have the effect of commencing a
fresh period of limitation.
26. In this case, the last acknowledgment was in 2013 and the
Madras High Court neither suffered from any defect of jurisdiction to
entertain the winding up application nor was unable to entertain the
winding up application for any other cause of a like nature.
27. The NCLAT held :-
“From the facts as narrated above, it will be evident that the
winding up petition was filed before the Hon’ble High Court of
Judicature at Madras which had not reached finality and in the
meantime, as the ‘I&B Code’ came into force, the demand notice
under Section 8(1) was issued on 14
th
 November, 2017 for
payment of outstanding amount along with the interest. Thus, as
we find that there is continuous cause of action the claim is within
the period of limitation. The Appellant had moved before an
appropriate forum for appropriate relief in time, in accordance
with law and so we hold that the claim of the Appellant is not
barred by limitation as the petition under Section 433 & 434 of
the Companies Act, 1956 become infructuous; by operation of
law.”
28. The limitation for initiation of winding up proceedings in the
Madras High Court stopped running on the date on which the Winding
Up petition was filed. The initiation of proceedings in Madras High
10
Court would not save limitation for initiation of proceedings for
initiation of CIRP in the NCLT under Section 7 of the IBC.
29. A claim may not be barred by limitation. It is the remedy for
realisation of the claim, which gets barred by limitation. The impugned
order of the NCLAT is unsustainable in law.
30. The appeal is allowed. The impugned order of the NCLAT is set
aside.
31. This judgment, however, will not prevent the Respondent from
pursuing any other remedy which the Respondent may be entitled to
avail in accordance with law and/or pursue any pending proceedings in
accordance with law.
...................................,J.
 [ INDIRA BANERJEE ]
...................................,J.
 [ J.K. MAHESHWARI ]
NEW DELHI;
SEPTEMBER 19, 2022

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