Section 61 of the IBC: A Case for Contextual Statutory Interpretation

[Hitoishi Sarkar and Yash More are II year students at Gujarat National Law University, Gandhinagar]

Section 61 of the Insolvency and Bankruptcy Code, 2016 provides for appeals from the National Company Law Tribunal (NCLT) to the National Company Law Appellate Tribunal (NCLAT). However, section 61 does not mention, in express terms, any details regarding the mechanism for calculating the limitation period. On the other hand, this statutory detail can be found in other comparable appeal provisions, such as section 62 of the Code, which provides for appeals from the NCLAT to the Supreme Court within 30 days from the “date of receipt of the order.”

The absence of a clear mechanism and detail in section 61 has left open scope for multiple interpretations in a manner that is opposed to well established legal principles enunciated by the Supreme Court and, more specifically, in the context of section 12(2) of the Limitation Act, 1963. This post attempts to examine the ramifications that arise due to the lack of clarity on this issue and the need for contextual interpretation of section 61 in order to satisfy the need for reason and statutory coherence.

Flip-Flop by the NCLAT

In the absence of statutory detail in section 61, it is important to look into the approach adopted by the NCLAT while interpreting this provision. The NCLAT has on multiple occasions dismissed appeals as they did not meet the statutory criteria of 30 days from the date of the order. For instance, the NCLAT in State Bank of India v. MBL Infrastructures Ltd. and Excise and Taxation Department, Sonipat Haryana v. Sunstar Overseas Ltd. held appeals preferred beyond thirty days from the date of order to be not maintainable under the Code.

On other occasions, the NCLAT has found the limitation period to be starting from the date the certified copy of the order is made available to the appellant. InSanjay Bagrodia v. Sathyam Green Power Plant Ltd. and Union of India v. Vijaykumar V. Iyer, the NCLAT calculated the 30-day limitation period within section 61 from the date on which the certified copy of the impugned order was received by the appellant. Similarly, in S. Kumar Construction Co. v. Bharti Airtel Ltd., the NCLAT held that the delay in filing an appeal shall be counted from the date of knowledge of the order.

In certain matters, the period of limitation has been considered from the date of order, while in others it has been considered from the date of receipt of the order. It is therefore evident that the calculation of the statutory limitation period of 30 days has been erroneously and inconsistently carried out. This ambiguity needs to be addressed at the earliest as it can potentially interfere with the statutory right of appeal provided to the appellants. For example, in  Nityanand Singh & Co. v. Ferrous Infrastructure Pvt. Ltd., the NCLAT dismissed an appeal that was preferred after 60 days from the date of the order. However, if calculated from the date of receipt of the order, the appeal was preferred on the 29th day, thereby meeting the statutory criteria.

Limitation Act, 1963

In B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates, the Supreme Court ruled that when a statute directs that an appeal shall lie to a court already established, then that appeal must be regulated by the practice and procedure of that court. The rationale behind the period of limitation being computed from the date of receipt of the order is the fact that rule 50 of the NCLT Rules, 2016 does not provide any stipulation requiring the filing of an application for obtaining a copy of the order, but it rather casts a duty upon the tribunal itself to communicate certified copies of the order to the concerned parties. This is primarily because rule 50 was drafted in consonance with section 420(3) of the Companies Act, 2013, which obligates the tribunal to send a copy of the order to parties concerned. In DIT v. Hyundai Heavy Industries Co. Ltd., the Uttarakhand High Court ruled that when such a specific mode of communication of order is provided, the appellants are entitled to the computation of limitation period from the date of receipt of order. Therefore, considering the specific mode for communication of NCLT orders in terms of rule 50, the appellants must have their limitation for filing appeal computed from the date of receipt of the order, as has been the practice and procedure of the NCLT.

It is a well-established position of law that no litigant’s legal rights shall be prejudiced on account of events beyond their control. Rule 157 of NCLT Rules, 2016 clearly outlines the modalities that need to be completed before the communication of orders to the concerned parties. A perusal of the aforementioned rule makes it amply evident that the litigant is able to receive a copy of the order only after completion of required modalities by the tribunal, thereby making the event an action beyond the control of the litigant.

Section 12(2) of the Limitation Act, 1963 relies on the same fundamental legal principle. The aforementioned provision expressly provides that in computing the period of limitation for an appeal, the time requisite for obtaining a copy of the decree, sentence or order appealed from shall be excluded. It is no longer res integra that the Limitation Act, 1963 is applicable to the proceedings or appeals before the NCLT and the NCLAT in insolvency proceedings by virtue of Section 238A of the Code. The Supreme Court of India in B.K. Educational Services held in unambiguous terms that the Limitation Act, 1963 is applicable to the Insolvency and Bankruptcy Code, 2016.

The next contentious issue that needs to be resolved is the applicability of section 12(2) of the Limitation Act, 1963 to appeals under section 61 of the Insolvency and Bankruptcy Code, 2016, considering that the Code is a special statute. This issue is addressed fairly by section 29(2) of the Limitation Act, 1963 which provides that section 12(2) of the Act will apply to the appeals under special statutes unless there is an “express exclusion.” The Supreme Court inTrustees of the Port of Madras v Mettur Chemical and Industries Ltd, Salem held that the phrase “express exclusion” signifies that the exclusion must be by words and not by construction or reasoning. However, the language of section 61 of the Code is unable to satisfy the threshold of exclusion from the applicability of Limitation Act, 1963.

Violation of Principles of Natural Justice

The NCLAT Rules, 2016 in unequivocal terms mandate that every appeal is to be accompanied by a certified copy of the impugned order. Therefore, it is obvious where the rules of the court requires the filing of a certified copy along with the memo of appeal or application, it is impossible to file the appeal if the time taken in the preparation of the copy is more than the period prescribed, in case the time for the preparation of the certified copy is not excluded. Therefore, any prejudice to the litigant on account of the tribunal’s delay in providing a copy of the order will amount to a violation of natural justice and is not sustainable in law. This is because any proceeding before the NCLT or NCLAT is to be in consonance with the principles of natural justice, a principle which finds place in section 424 of the Companies Act, 2013 which applies to proceedings before the NCLT and, hence, even while dealing with matters relating to the Code as held in Innoventive Industries Ltd. v. ICICI Bank.

Precedents of the Supreme Court

The Supreme Court has in a catena of judgments held that the period of limitation for filing an appeal must be computed from “either the date of actual or constructive communication of the said order to the party concerned”. Back in 2011, when a similar question of law was brought before the Supreme Court in State of Maharashtra v. Ark Builders Pvt. Ltd, the Court ruled that “if a law prescribes that a copy of the order is to be communicated to the parties then the period of limitation can only commence from the date on which the order was received by the party concerned in the manner prescribed by the law”.

A similar approach was attempted by the legislature in the erstwhile Sick Industrial Companies (Special Provisions) Act, 1985 which expressly provided that time for preferring an appeal starts from the date on which the copy of the impugned order is issued. However, the Supreme Court in State Bank of India v. Sree Rayalaseema Paper Mills Ltd refused to endorse this approach and ruled that the word “issued” is to be judicially construed to be “inclusive of the service of the order”.

Furthermore, it is an established position of law that no prejudice shall be caused to anyone due to the fault of the court. This principle of actus curiae neminem gravabit has been reiterated by the Supreme Court on multiple occasions, most notably in Kalabharati Advertising v. Hemant Vimalnath Narichania. The principle came into limelight with respect to the Code in the matter of Committee of Creditors of Essar Steel India Limited through Authorised Signatory v. Satish Kumar Gupta wherein the Court ruled on the constitutionality of section 12 of the Code. The principle is equally applicable to the appeal provisions under section 61, as the appellant cannot be put at any disadvantage for the time taken by the court in providing the appellant with a copy of the order.

The Way Forward

There is a need for the Indian courts to adopt the contextual method of statutory interpretation because any textual interpretation of section 61 will lead to absurd results, while even an intention-oriented interpretation would not meet the need for reason and coherence in statutory interpretation. This is because any provision of law such as the aforementioned section cannot be interpreted in a statutory vacuum in a manner that is opposed to equity. A contextualist approach permits the courts to serve as a repository of the principles developed over the years in a field of law and to use those principles as an appropriately limited basis for departure from the statutory text. This approach has been endorsed in Romero v. International Terminal Operating Co. where the US Supreme Court ruled that law, equity, and admiralty are distinct realms of judicial power. Therefore, the contextualist interpretation protects the courts and the public interest from absurd actions arising out of a textual interpretation of erroneous statutes.

Hitoishi Sarkar & Yash More

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