Limitation Act and Insolvency and Bankruptcy Code: Deductions from the Past and Present

[Priya Gupta is a 3rd year B.A.LLB (Hons.) student at Gujarat National Law University, Gandhinagar]

Over the past few months, a considerable debate has emanated on whether the Limitation Act, 1963 is applicable to proceedings under the Insolvency and Bankruptcy Code, 2016 (“IBC”). Although the answer has always resulted in being negative, the reasoning has been varying. The question first arose in Neelkanth Township vs. Urban Infrastructure, where the National Company Law Tribunal (“NCLAT”) held the Limitation Act to be inapplicable due to the lack of a specific provision in the IBC. Further ambiguity was created when Supreme Court dismissed the appeal and left the matter open-ended. In what followed, several benches of the National Company Law Tribunal (“NCLT”) in cases like Prowess International and Western Refrigeration held to the contrary.

What seems to be the major point of contention is the applicability of section 433 of the Companies Act, 2013 to the IBC. In a judgment pertaining to Black Pearls in October 2017, the NCLAT observed that even if the Limitation Act was to be applicable, the commencement of the period would be only from December 2016. However, another NCLAT judgment in Speculum Plast v. PTC Techno in November 2017 seems to be addressing all the loopholes while holding that the Limitation Act is not applicable.

In this case, not only the respondents but also a Senior Advocate acting as amicus curiae aggressively contended that the Limitation Act is applicable to a corporate insolvency resolution process code by drawing a reference to sections 424, 425, 433, 434 and 430 of the Companies Act, 2013. Counsel relied on the doctrine of limitation and prescription, which states that when someone sits on their rights for long, it becomes non-existent. However, the tribunal by using the pretext of the IBC being a complete code in itself, ruled otherwise. As stated in Innoventive Industries Ltd v. ICICI Bank & Anr., it was inferred that the absence of any provisions in the IBC was an indication of the legislative intent to exclude the application of that specific provision. Further in Hukumdev Narain Yadav v. Lalit Narain Mishra, the Supreme Court, while examining the application of the Limitation Act to the Representation of Peoples Act, 1951, held that the test of applicability is the existence of a complete code.  It is to be noted here that this case explores a number of legal propositions and starts by setting out a test for the application of the Limitation Act to other enactments.

Here I explore as to how all the observations above were justified, and I do so with the help of principles of interpretation of statutes.

Legislative Intent of the IBC: The most prominent rule of interpretation of statutes is understanding the intention of the legislature. This rule of interpretation comes in handy when more than one interpretation is available to the court. The tribunal, to decode the same, looked into the provisions of Presidency Towns Insolvency Acts and limitation provisions mentioned therewith. It was noticed as to how the drafters specifically excluded the limitation provisions in the present IBC.

Further, concerns regarding the application of section 433 of the Companies Act, 2013 were also resolved by looking at the intention of the legislature to not to amend such provision specifically where under section 255 of the IBC, other provisions of Companies Act were amended. This was further substantiated by drawing a reference to un-amended limitation sections of Recovery of Debts Due to Banks and Financial Institutions Act, 1993 (the “RDDBFI Act”) and the Securitisation and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002, thereby showing the true intention of the legislature of deliberate omission.

Enactment to be read as whole: Another important rule of interpretation is to read the statute in its entirety. The tribunal observed that even though limitation provision was omitted, the entire IBC provided for various time limitations in terms of filing of applications, appeals and rectifications. For example, section 7 allows a fourteen days’ time period to the adjudicating authority to allow or reject an application. Similarly, expiry period for serving notice is also prescribed and so on. Thereby, it cannot be said that the legislature had entire disregard for all limitation periods.

Not to render any provision redundant: While adjudicating, it is necessary for any court of law to interpret the statute in such a way that it does not render any of the provisions redundant.  If the Limitation Act was to be made applicable, then section 10 of the IBC would become redundant. This section discusses the condition where a corporate debtor itself applies for insolvency resolution process. In such a condition, it would be difficult to decide the limitation period as the application is filed against oneself, when the ability to pay debts diminishes thereby rendering the section completely redundant.

Finally, the tribunal also dealt with doctrine of limitation and prescription, but prescribed it only to be used where applications are filed after long delays. The tribunal is granted discretion to accept or reject the application if the delay explained is reasonable.

Therefore, even though the case provides a wide window for claims that may be delayed, it at the same time accommodates for claims that have a reasonableness attached thereby catering to the principles of equity. It is not the first time that courts or tribunals have excluded the application of Limitation Act to certain provisions. In Gopal Sardar vs. Karuna Sardar, the Supreme Court excluded the application of section 5 of the Limitation Act to section 8 of the West Bengal Land Reforms Act which is initiated by an application. Moreover, it has been observed that the enactment being a complete code has been the basis over years for non-application of the Limitation Act. In the Supreme Court ruling of International Asset Reconstruction Co. v. The official liquidator of Aldrich, counsel for the appellants contested that the RDDBFI Act was not a complete code in itself and so the Limitation Act was applicable in case of section 19 only. The bench, however, decided to the contrary by looking at the entire provisions of the Act to understand the intention of the legislature.

In brevity, even though a Supreme Court ruling does not exist on the question directly, the fact that the IBC is a complete code in itself should be enough to allow for the non-applicability of the Limitation Act. At the end of the day, courts and tribunals have to respect the legislative intent and not take upon the task on themselves to fill gaps where that is not required or desirable.

– Priya Gupta

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1 comment

  • In addition to what has been pointed out by the author, i may also add that the supreme court in bk educational services (order dated 10 January 2018) has stayed the NCLAT order where NCLAT held that limitation act does not apply, but final verdict on the matter is awaited.

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