12 October 2018

Limitation in insolvency cases – Insertion of s.238A in IBA is retrospective

Relying on Report of Insolvency Law Committee, Supreme Court of India has held that insertion of Section 238A in the Insolvency and Bankruptcy Code (IBC) is retrospective.

Setting aside the NCLAT Order, the court in its judgement dated 11-10-2018 held that Limitation Act, 1963 will apply to the applications made under Section 7 and/or Section 9 of the IBC on and from its commencement on 1-12-2016 till 6-6-2018 when the provisions of applicability of Limitation Act were incorporated.

Observing that expressions “under this Act” or “subject to the provisions of this Act” are absent in Section 433 of the Companies Act, 2013, it was held that said section would apply to the Tribunal even when it decides applications under Sections 7 and 9 of the Code. It also observed that it was unnecessary to apply and adapt Section 433 of the Companies Act to the Code.

It was also held that Section 238A would not serve its object unless it is construed as being retrospective, as otherwise applications seeking to resurrect time-barred claims must be allowed as they would not be governed by law of limitation.

The Apex Court in the case of B.K. Educational Services v. Parag Gupta also relied upon Section 434(1)(c) of the Companies Act, 2013 on transfer of pending cases, and held that it cannot be stated that because these proceedings are now before the Tribunal, instead of being before the High Courts, Limitation Act will cease to apply.

The fact that corporate insolvency resolution process against a corporate debtor can only be initiated either by a financial or operational creditor in relation to debts which have not become time-barred, was also noticed in this regard.

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