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NCLAT rightly refused to stay the proceedings before the NCLT as section 14 does not strictly apply: Supreme court of India

The judgment and order of the NCLT do not warrant interference and that the NCLAT rightly refused to stay the proceedings before the NCLT as Section 14 does not strictly apply, the principles of Section 14 can be invoked to grant relief to an applicant under Section 5 of the Limitation Act by purposively construing ‘sufficient cause’. It is well settled that omission to refer to the correct section of a statute does not vitiate an order. . This court dismissed the appeal in the matter of SESH NATH SINGH & ANR. V. BAIDYABATI SHEORAPHULI CO-OPERATIVE BANK LTD AND ANR. [CIVILAPPEAL NO. 9198 OF 2019] headed by Justice Indira Banerjee.

The appeal under Section 62 of the Insolvency and Bankruptcy Code 2016, hereinafter referred to as the ‘IBC’, was against a judgment and order dated 22nd November 2019, passed by the National Company Law Appellate Tribunal (NCLAT), dismissing Company Appeal (AT) (Insolvency) No.672 of 2019, filed by the Appellants, challenging an order dated 25th April 2019, of the National Company Law Tribunal (NCLT), Kolkata Bench, admitting the application filed by the Respondent No.1 as Financial Creditor, under Section 7 of the IBC being CP(IB) No.1202/KB/2018, thereby initiating the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor, Debi Fabtech Private Ltd.

The Corporate Debtor requested the Financial Creditor for a cash credit facility of Rs.1,00,00,000/- which remained unpaid. A writ petition was filed by the debtor under Article 226 of the Constitution of India challenging the said notices issued by the Financial Creditor under Section 13(2) and 13(4) of the SARFAESI Act, which favored the debtor.

Later, the creditor filed an application in the Kolkata Bench of NCLT for initiation of the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor under Section 7 of the IBC, and Notice of the petition under Section 7 of the IBC was duly served on the Corporate Debtor. Notice of the petition under Section 7 of the IBC was duly served on the Corporate Debtor. The maintainability of the application under Section 7 of IBC was also opposed before the NCLT, on the purported ground that a Special Officer had been appointed as Administrator over the Financial Creditor, only to hold elections. Such a Special Officer could not, therefore, initiate any proceeding on behalf of the Financial Creditor. The Corporate Debtor did not oppose the application under Section 7 of the IBC in the NCLT on the ground of the same being barred by limitation.

Being aggrieved by the NCLT, the creditor filed an appeal before the NCLAT and It was only in appeal before the NCLAT, that the Corporate Debtor, for the first time, contended, that the account of the Corporate Debtor had been declared NPA on 31st March 2013 whereas the application under Section 7 of IBC had been filed on 27th August 2018, after almost five years and five months from the date of accrual of the cause of action, and was therefore barred by limitation. The NCLAT dismissed the appeal, with the observation that the ground of limitation had been taken by the Corporate Debtor for the first time, in the appeal. There was no finding of the Adjudicating Authority on this issue.

The NCLAT examined the issue of limitation and held that “the Respondent had bona fide, within the period of limitation, initiated proceedings against the Corporate Debtor under the SARFAESI Act and was thus entitled to exclusion of time under Section 14(2) of the Limitation Act. The NCLAT, after exclusion of the period of about three years and six months till the date of the interim order of the High Court, during which the Financial Creditor had been proceeding under SARFAESI Act, found that the application of the Financial Creditor, under Section 7 of the IBC, was within limitation. The appeal was accordingly dismissed.”

it was stated that “the objective of the IBC is to consolidate and amend the laws relating to reorganization and insolvency resolution of corporate persons, partnership firms and individuals in a time-bound manner, for maximization of the value of the assets of such persons, to promote entrepreneurship, availability of credit and to balance the interest of all the stakeholders.”

The court was of the opinion that “if a party were to file a suit in a wrong forum, to enforce payment of money secured by a mortgage or charge upon immovable property, for which the prescribed period of limitation is twelve years, after the expiry of three years from the date of accrual of the right to sue, and then file an application under Section 7 of the IBC after the dismissal of the suit for want of jurisdiction, that application under Section 7 of the IBC would be time-barred since such party would not be entitled to exclusion of any period of time beyond the date of institution and date of termination of the earlier proceeding.”

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