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Supreme Court: Even in the Absence of Formal Application, Delay Can Be Condoned Under Section 5 of Limitation Act

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Case Name: Sesh Nath Singh vs. Baidyabati Sheoraphuli Co-operative Bank Ltd. [CA 9198 of 2019]

Facts of the case

In this case, the corporate debtor was an exporter of tiles and garments. He requested the financial creditor to the credit of cash facility of Rs. 1 Crore, which was granted and a cash credit account was opened in the name of the corporate debtor. Additionally, a hypothecation agreement was duly executed by the corporate debtor with the financial creditor. In May 2012, according to the financial creditor, a default in repayment was made by the corporate debtor after which, the cash credit account became irregular and was converted into a Non-Performing Asset. The financial creditor issued notice twice to the corporate debtor for clearing outstanding dues under Section 13(2) of the SARFAESI Act otherwise action will be taken under Sec. 13(4) of the Act. Finally, the financial creditor issued a notice to the corporate debtor for peacefully handing over the possession of secured immovable assets which was challenged by the corporate debtor in the Calcutta High Court

During the pendency of writ petition, the financial debtor issued the notice of taking possession of secured assets of corporate debtor which was approved by the magistrate of Hoogly Court but later the interim Order of the High Court restrained the financial creditor to take any action against the debtor. In July 2018, an application was filed by the creditor to NCLT, Kolkata bench for initiating CIRP against the debtor under Sec. 7 of Insolvency and Bankruptcy Code. This petition and maintainability of application were opposed by the debtor. But the application was accepted via Order and the Insolvency Resolution Professional was appointed and a moratorium was declared. Aggrieved by the Order,  an appeal was filed before NCLAT which was later dismissed and then the appeal was filed in Supreme Court.

Pleading before the Court

It was pointed out by the learned Counsel on behalf of the Respondent, i.e, the financial creditor that included a synopsis of pertinent facts and important dates, as well as supporting documents, including, the date of sanction of loan, the date on which account was declared an NPA, date of demand notices, orders of the magistrate and that of High Court, etc. in its application to the NCLT under Section 7 of the IBC. It was further pointed out that the Corporate Debtor’s Cash Credit Account was declared NPA with effect from March 31, 2013, according to the applicable dates. On the 18th of January 2014, a Demand Notice was issued under Section 13(2) of the SARFAESI Act, which started the proceedings.

On the other hand, it was submitted by the learned counsel on behalf of the Appellant that the Financial Creditor’s application under Section 7 of the IBC was barred by restriction and should have been rejected on that basis, and the order under appeal was against the law, as declared by a larger Bench of the NCLAT in Ishrat Ali vs. Cosmos Cooperative Bank Limited and Anr. It was argued that an application under Sec. 7 was filed after 5yrs and 3 months from the date of cause of action and should be time-barred. It was further submitted that under Section 5 of the Limitation Act, the Financial Creditor had not applied with the NCLT. As a result, the time it took to apply to Section 7 of the IBC could not be excused.

Court’s observation

It was observed by the bench of the Supreme Court comprising Justices Indira Banerjee and Hemant Gupta that even though, it is a common practice to file a formal application under Section 5 of the Limitation Act, 1963, for the Court or Tribunal to consider the sufficiency of the cause for the Appellant’s/ applicant’s inability to approach the Court/Tribunal within the time prescribed by limitation and there was no bar to the Court/Tribunal exercising its discretion to excuse the delay in the aforementioned case.

It was further observed that if Section 14 were to be interpreted in the context of proceedings under Sections 7 or 9 of the IBC with strict and pedantic adherence to its literal meaning, the result would be that an applicant would not even be entitled to exclusion of time spent in bona fide invoking and diligently pursuing an earlier application. This could not possibly have been the intention of the legislation.

Court’s Judgement

The Supreme Court in its judgement held that the applicant may claim the benefit of Section 14 of the Limitation Act in proceedings under the SARFAESI Act in an application under Section 7 of the Insolvency and Bankruptcy Code. Section 14 applies to an application filed under Section 7 of the IBC, and there was no rule stating that the exclusion of time under Section 14 was available only after the proceedings in the wrong forum have concluded.

It was further held that in the absence of a formal application, the Court/tribunal may exercise its discretion to forgive delay under Section 5 of the Limitation Act. Also, the proceedings under the SARFAESI act are “civil proceedings” for Section 14 of the Limitation act.

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