CIRP Application Time Barred By Limitation Cannot Be Revived By Issuing Demand Notice u/s 8 IBC: NCLAT [Read Order]

The National Company Law Appellate Tribunal (NCLAT), Principal Bench, New Delhi, has held that a Corporate Insolvency Resolution Process (CIRP) application that is barred by limitation under Section 9 of the Insolvency and Bankruptcy Code, 2016, cannot be revived by the mere issuance of a demand notice under Section 8. The Appellate Tribunal has dismissed the appeal and reiterated that the issuance of a Section 8 notice does not extend or give rise to a fresh period of limitation.

The appellant Haabia Resources Private Limited, an operational creditor filed an appeal against the order passed by the NCLT, rejecting its Section 9 application on the ground that it was time-barred. The claim made by the operational creditorwhich was based on the MSME Council awards dated 26.02.2011, were disputed by the corporate debtor, Vidyut Metallics Private Limited, before various judicial authorities.

The dispute over the award finally reached the Supreme Court, where the appeal was withdrawn on 11.03.2013, making the arbitral awards final and enforceable. But the operational creditor sent a Section 8 demand notice in December 2019 and then filed a Section 9 application in March 2020.

The NCLT held that the right to sue arose when the arbitral award became final and that the application, filed nearly nine years after, was clearly barred by limitation under Article 137 of the Limitation Act and Section 238A of the IBC.

Before the NCLAT, the appellant-operational creditor had argued that the application under Section 9 of the IBC was filed within limitation as the cause of action arose only after the issuance of the demand notice under Section 8 of the IBC.

The appellant further submitted that the arbitral award cannot be considered the starting point of limitation for the insolvency proceedings and that the IBC has a separate mechanism, which is not dependent on the execution of awards. The appellant had also submitted that the application was filed “within three years from the date of issuance of the demand notice” and, therefore, cannot be held to be time-barred.

In opposition to the appeal, the respondent corporate debtor submitted that the arbitral award had attained finality on 11.03.2013, upon the withdrawal of the proceedings pending before the Supreme Court, and that the right to sue had arisen on the same date itself. The respondent cited that “IBC is not a recovery mechanism” and submitted that a barred claim cannot be revived by the issuance of a demand notice after several years. It was also submitted that insolvency proceedings cannot be recognized with execution proceedings, and that such revival would result in the defeat of the object of limitation under the Code.

The NCLAT held that the application for CIRP under Section 9 of the IBC is regulated by Article 137 of the Limitation Act, as applicable thereto by Section 238A of the Code, and the limitation period is to be calculated from the time when the right to sue first accrues. Citing the Supreme Court’s rulings in B.K. Educational Services Pvt. Ltd. v. Parag Gupta & Associates and Sagar Sharma v. Phoenix ARC Pvt. Ltd., the Appellate Tribunal held that insolvency proceedings cannot be initiated on barred claims.

The Tribunal comprises Justice Ashok Bhushan (Chairperson) and Mr. Barun Mitra (Technical Member)held that the issuance of a demand notice under Section 8 does not create a fresh cause of action, relying on Jignesh Shah v. Union of India, where the Supreme Court held that limitation cannot be revived by subsequent acknowledgments or procedural acts.

Accordingly the tribunal noted that proceedings under the IBC are not proceedings for the execution of an arbitral award, and thus, the longer limitation period applicable to execution proceedings cannot be extended to CIRP proceedings.

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