Supreme Court Sets Aside Insolvency Proceedings Against Jignesh Shah Owned La-Fin Citing Law Of Limitation Norms

The Supreme Court has set aside an order passed by the National Company Law Appellate Tribunal (NCLAT) order citing provisions of the Limitation Act.

Earlier, the NCLAT had had allowed insolvency proceedings against La-Fin Financial Services, owned by Jignesh Shah.

After Jignesh Shah appealed against the NCLAT order, the Supreme Court observed that the winding up petition is time-barred and subject to provisions of the Limitation Act.

The Supreme Court has reiterated that Section 7 applications under the IBC are subject to Section 137 of the Limitation Act.

It may be recalled that IL&FS Financial Services Limited had filed a winding up petition under Section 433(e) of the Companies Act against Jignesh Shah owned La-Fin Financial Services before the Bombay High Court. The ground for this petition was the non-payment of purported dues by La-Fin to IL&FS.

In 2009, IL&FS had agreed to purchase 442 lakh equity shares of MCX Stock Exchange Limited from Multi Commodity Exchange India Limited (MCX) and a share purchase agreement was executed to that effect. La-Fin, which is a group company of MCX, had issued a Letter of Undertaking to IL&FS stating that it would offer to purchase these equity shares from IL&FS between the period of one to three years from then. This period of three years lapsed in August 2012.

IL&FS decided to sell its entire stake in MCX-SX and sought for La-Fin to offer to purchase the same in conformity with the Letter of Undertaking.

However, Jignesh Shah maintained that his company was under no legal obligation to make the purchase.

After various rounds of correspondence, IL&FS sent statutory notices to La-Fin in November 2015 under Sections 433 and 434 of the Companies Act. In response to the same, La-Fin had disputed the existence of dues claimed by IL&FS. In October 2016, a winding up petition was moved by IL&FS in the Bombay High Court. This was subsequently transferred to the NCLT as a Section 7 application under the IBC.

The Mumbai Bench of the NCLT admitted the plea in 2018, finding that a financial debt did, in fact, exist in the instant case owing to the share purchase agreement as well as the Letter of Undertaking signed by La-Fin.

The NCLT paved the way for insolvency proceedings against La-Fin and this decision of the NCLT was challenged by Jignesh Shah before the NCLAT, which upheld the decision of the NCLT.

This prompted Jignesh Shah to appeal to the Supreme Court against the NCLAT decision.