Supreme Court rules Section 7 IBC application is not time-barred
An application would not be barred by limitation merely on the ground that it was filed beyond a period of three years from the date of declaration of the loan account of the corporate debtor as NPA
In a major relief to corporate debtors, the Supreme Court on 4 August ruled that an application under Section 7 of the Insolvency and Bankruptcy Code (IBC) was timed barred.
An Apex Court bench of Justices Indira Banerjee and V Ramasubramanian said that such an application would not be barred by limitation, merely on the ground that it was filed beyond a period of three years from the date of declaration of the loan account of the corporate debtor as Non-Performing Asset (NPA) in Dena Bank v C Shivakumar Reddy case.
The court clarified that this is only applicable if there was an acknowledgement of the debt by the corporate debtor before the expiry of the period of limitation of three years, in which case the period of limitation would get extended by a further period of three years.
The bench also held that a judgment or decree for money in favour of the financial creditor, passed by the Debt Recovery Tribunal (DRT) or any other tribunal or court, or the issuance of a certificate of recovery in favour of the financial creditor, would give rise to a fresh cause of action for the financial creditor. The financial creditor can, however, initiate proceedings under Section 7 of the Insolvency and Bankruptcy Code for initiation of the Corporate Insolvency Resolution Process within three years from the date of the judgment if the dues of the corporate debtor to the financial debtor remained unpaid.
The court observed that there is no bar in law to the amendment of pleadings in an application under Section 7 of the IBC, or to the filing of additional documents, apart from those initially filed along with the application under Section 7 of the IBC in Form-1.
"In the absence of any express provision which either prohibits or sets a time limit for filing of additional documents, it cannot be said that the Adjudicating Authority committed any illegality or error in permitting the Appellant Bank to file additional documents," the court said.
The Top Court further clarified that depending on the facts and circumstances of the case, the Adjudicating Authority might, at its discretion, decline the request of an applicant to file additional pleadings and/or documents, and proceed to pass a final order when there is an inordinate delay,
The appeal in the Supreme Court was filed against an order of the National Company Law Appellate Tribunal (NCLAT). NCLAT had, in turn, allowed an appeal against an order of the National Company Law Tribunal wherein the adjudicating authority had admitted a petition filed by Dena Bank against the Corporate Debtor under Section 7 of IBC.
The National Company Law Appellate Tribunal had ruled that the petition by Dena Bank under Section 7 of the IBC was barred by limitation.