Law Over Equity in Condonation of Delay under the IBC

[Anumeha Smiti is a final year B.A.LL.B (Hons.) student at National University of Study and Research in Law, Ranchi]

In the recent matter of National Spot Exchange Limited v. Mr Anil Kohli, Resolution Professional for Dunar Foods Limited (14 September 2021), the Supreme Court reiterated the position of law on condonation of delay by the National Company Law Appellate Tribunal [NCLAT] under section 61(2) of the Insolvency and Bankruptcy Code, 2016 [IBC]. Emphasizing the upper hand of express and unequivocal law over equitable considerations, the Supreme Court upheld the order of the NCLAT and decided against the condonation of a delay of 44 days beyond the statutorily prescribed limit. Further, delineating the scope of Article 142 of the Constitution of India, the Court observed that it cannot transgress into the domain of the legislature by allowing the appeal.

Background of the Appeal

The National Company Law Tribunal [NCLT] initiated a corporate insolvency resolution process [CIRP] against Dunar Foods Limited, the corporate debtor, on an application instituted by State Bank of India under section 7 of the IBC. This was followed by the appointment of an interim resolution professional [IRP] who invited claims from the creditors of the corporate debtor. In response, National Spot  Exchange Limited [NSEL] submitted claims of Rs. 673.85 crores against the corporate debtor based on a decree passed in its favour against PD Agro (a sister concern of the corporate debtor) which had siphoned off the said amount to the corporate debtor. The IRP rejected NSEL’s claim noting that there was no privity of contract between NSEL and the corporate debtor, nor had the corporate debtor issued any letter of guarantee for PD Agro in favour of NSEL. Such rejection of claim by the IRP was also upheld by the NCLT.

Dissatisfied by the order of the NCLT, NSEL sought to appeal before the NCLAT. However, there was a delay of 44 days beyond the maximum period for appeal prescribed under section 61(2) of the IBC. The NCLAT, citing its lack of jurisdiction over condonation of delay beyond the maximum period specified in the statute, dismissed the appeal. NSEL had, therefore, preferred the present appeal seeking condonation of delay through an exercise of powers of the Supreme Court under Article 142 of the Constitution.

Judgment

On the question of the NCLAT’s dismissal of the appeal, the Supreme Court held that where the period of limitation and the permissible extension to such period, attributable to a sufficient cause justifying such delay, is unambiguously stated in the IBC, the NCLAT had no inherent powers to condone a delay beyond the extended period. Upholding the dismissal of the appeal by the NCLAT, the Court added that so far as the IBC prescribed a special limitation for preferring appeals, the provisions of the Limitation Act must give way to the IBC. Drawing upon the observations in Union of India v. Popular Construction Company, it was highlighted that the language of section 61(2) of the IBC amounts to an express exclusion within the meaning of section 29(2) of the Limitation Act.

Additionally, reflecting on how the delay on part of NSEL cannot be condoned, the Court noted that NSEL had applied for the Certified Copy of the order passed by the NCLT only after the lapse of the 30-days period of limitation given under section 61(2). Finally, exploring a situation where any appellant may not be in a position to file an appeal within the extended maximum period of appeal, the Court was of the view that so long as the Parliament has not carved out an exception to such situation, the courts have no jurisdiction or authority to provide for such exception. Stating that law prevails over equitable considerations, the Court emphasised that what cannot be done directly considering the statutory provisions cannot be done indirectly while exercising the powers under Article 142 of the Constitution of India.

Analysis

Applicability of Limitation Act on an ‘as far as may be’ basis

The Supreme Court in Sesh Nath Singh v. Baidyabati Sheoraphuli Co-operative Bank Ltd observed that “use of words ‘as far as may be’, occurring in Section 238A of the IBC tones down the rigour of the words ‘shall’ in the aforesaid Section which is normally considered as mandatory. This clarifies that the provisions of the Limitation Act may not apply to proceedings before the NCLT or the NCLAT, if they are patently inconsistent with some provisions of the IBC.

In line with the common rule of statutory interpretation, generalia specialibus non derogant, the Court rightly reiterated the observation made in Popular Construction Company that where a special Act provides for a period of limitation different from that prescribed under the Limitation Act, the provisions of the Limitation Act will not be applicable to condone any delay. Further, when the period prescribed by the Limitation Act tends to defeat the object of the special law under which the proceedings have been initiated, the Limitation Act must give way to the special law. Therefore, so long as the condonation of delay beyond the extension of 15 days permissible under section 61(2) of the IBC goes contrary to the objective of time-bound resolution of the CD, the delay in appeal may not be condoned. 

Dura lex sed lex: law over equity

Inconvenience or hardship is not a decisive factor while interpreting an unequivocal statutory provision. The phrase dura lex sed lex means that the law is hard, but it is the law. Abiding by this rule of interpretation, any hardship cannot be used as a basis to alter the meaning conveyed through a statutory provision. Reiterating the jurisprudence on the conflict between law and equity, the Supreme Court has appropriately observed that equitable considerations do not prevail over express provision, “as equity can only supplement the law when there is any gap in it, but not supplant the law.”

Ambit of Article 142 of the Constitution   

The rule of law requires a separation of powers between the legislative, executive and judiciary. Allowing an appeal beyond the period of extension prescribed under the statute would therefore reflect a transgression of the courts into the domain of the Parliament. It has been emphasized that in its endeavour to deliver ‘complete justice’ under Article 142, the court cannot pass any order inconsistent with the substantive provisions of the relevant statutory laws. When the statute provides that any delay beyond the extension prescribed thereunder cannot be condoned, such expression comes within the sweep of the provisions and policy of legislation which cannot be interfered with, by the courts. At this point it is pertinent to highlight this court’s judgment in Oil & Natural Gas Corporation Limited v. Gujarat Energy Transmission Corporation Limited, where it was settled that if a delay cannot be condoned statutorily, it cannot be condoned at all.

Conclusion

In its judgment, the Supreme Court has reinforced the principle of limitation that the law assists only those who are vigilant, and not those who sleep over their rights. While using the law to justify the denial of condonation of delay by NCLAT, the Court has also noted the potential dilatory tactics used by appellants. As, in the present matter, in spite of applying for the certified copy of the NCLT’s order after the lapse of the prescribed limitation period for appeals, no submissions were made by NSEL to establish the existence of any sufficient cause behind the delay. Further, by weighing time-bound resolution of the corporate debtor over any incidental procedural matter, the Court has strengthened the approach of minimal judicial interference that should ideally be maintained while adjudicating economic laws.

Anumeha Smiti

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