Limitation Period for IBC Applications Remains Three Years, Even for Court Decrees: NCLAT

Limitation Period for IBC Applications Remains Three Years, Even for Court Decrees: NCLAT

Introduction

The National Company Law Appellate Tribunal (NCLAT) has clarified that the limitation period for filing an application under the Insolvency and Bankruptcy Code (IBC) remains three years, even if the application is founded on a court decree. This period is not extended merely because the decree itself can be executed within 12 years under the Limitation Act.

Factual Background

Two appeals were filed by IDBI Bank Ltd. against orders of the National Company Law Tribunal (NCLT) Indore Bench, which rejected the bank’s application under Section 95 of the IBC as time-barred.

The bank argued that, based on the Supreme Court’s judgment in Tottempudi Salalith v. State Bank of India & Ors., a decree passed by a court remains enforceable for 12 years, and thus the same 12-year period should apply for filing IBC applications based on such a decree.

Procedural Background

The NCLT Indore dismissed the bank’s Section 95 application on limitation grounds, holding that it had been filed beyond the permissible period. The bank appealed to the NCLAT, reiterating that the limitation should be aligned with the 12-year period applicable for decree execution under Article 136 of the Limitation Act.

Issues Considered

1. Whether the limitation period for filing an application under the IBC extends to 12 years when based on a court decree.

2. Whether Article 137 of the Limitation Act governs IBC applications irrespective of the underlying claim’s nature.

Contentions of the Parties

• Appellant’s Contentions: IDBI Bank contended that the Tottempudi Salalith judgment supported its case for a 12-year limitation period when an application is based on a decree.
• Respondent’s Contentions: No counter-arguments from respondents are recorded in the judgment.

Reasoning & Analysis

The bench of Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member) observed that:

• Article 137 of the Limitation Act applies to all IBC applications, prescribing a three-year limitation period from the date of default.
• Article 136, which provides 12 years for execution of a decree, is not applicable to insolvency proceedings.
• The Tribunal relied on Kotak Mahindra Bank Ltd. v. A. Balakrishnan and its earlier ruling in B.K. Educational Services Pvt. Ltd. v. Parag Gupta & Associates, both confirming the three-year limit for initiating IBC proceedings.
• While the issuance of a recovery certificate may give rise to a fresh cause of action, applications must still be filed within three years from that date.

The Tribunal further noted that the appellant’s reliance on Tottempudi Salalith was misplaced, as the Supreme Court did not hold that IBC limitation extends to 12 years in cases based on a decree.

Outcome

The NCLAT dismissed the appeals and upheld the NCLT Indore’s decision that the application was barred by limitation, as it had been filed beyond the three-year period under Article 137.

In this case, the appellant was represented by Mr. Vaibhav Gaggar and Mr. Shreedhar Gaggar, Advocates.