PUNJAB NATIONAL BANKversusMR. VIJAY SITARAM DANDNAIK & ANR.

380                      [2022]REPORTS
               SUPREME COURT   18 S.C.R. 380               [2022] 18 S.C.R.


A                        PUNJAB NATIONAL BANK
                                        v.
                 MR. VIJAY SITARAM DANDNAIK & ANR.
                         (Civil Appeal No. 2277 of 2021)
B                              AUGUST 30, 2022
       [S. ABDUL NAZEER AND V. RAMASUBRAMANIAN, JJ.]
             Insolvency and Bankruptcy Code, 2016: ss. 7, 238A –
      Limitation Act, 1963 – Art. 137 – Initiation of corporate insolvency
      resolution process by financial creditor – Limitation period – On
C
      facts, corporate debtor defaulted in repayment and became a NPA
      – Financial creditor-Bank filed a petition u/s. 7 to initiate Corporate
      insolvency resolution process against the Corporate Debtor – Bank
      also filed application before DRT for issue of certificate of recovery,
      wherein by order dated 01.11.2016, the DRT directed the corporate
D     debtor and others including respondent no. 1 to jointly and severally
      pay to the Bank – In a parallel proceeding, the High Court directing
      the winding up of the Corporate Debtor – Petition u/s. 7 admitted
      by the NCLT by order dated 06.11.2019 – Challenge to, by the first
      respondent claiming to be 50% shareholder, promoter, director and
      creditor of the Corporate Debtor – NCLAT set aside the order of
E
      the NCLT on the ground that the claim of the Financial Creditor
      was barred by limitation – On appeal, held: Order of the DRT in the
      Original Application filed by the Bank u/s. 19 of the Act, 1993, is
      dated 01.11.2016 – It is only thereafter that the Corporate Debtor
      issued Balance and Security Confirmation letter dated 17.06.2017,
F     apart from making a request for restructuring the loan – Thus, the
      application filed by the bank u/s.7 was clearly within three years
      from the date on which the “right to apply” in terms of Art. 137
      accrued – Thus, the application filed by the Bank u/s. 7 was within
      the period of limitation – Recovery of Debts due to Banks and
      Financial Institutions Act, 1993.
G
            Dena Bank vs. C. Shivakumar Reddy and Another
            (2021) 10 SCC 330 : 2021 (7 ) JT 405 – relied on.
            Jaipur Metals and Electricals Employees Organization
            vs. Jaipur Metals and Electricals Ltd. & Ors. (2019) 4
H           SCC 227 : [2018] 14 SCR 926; Babulal Vardharji
                                       380
     PUNJAB NATIONAL BANK v. MR. VIJAY SITARAM                             381
                 DANDNAIK & ANR.

      Gurjar vs. Veer Gurjar Aluminium Industries Pvt. Ltd.                A
      & Anr. (2020) 15 SCC 1; B.K. Educational Services
      Private Limited vs. Parag Gupta and Associates (2019)
      11 SCC 633 : [2018] 12 SCR 794; Jignesh Shah and
      Anr. vs. Union of India and Anr. (2019) 10 SCC 750 :
      [2019] 12 SCR 678; Vashdeo R. Bhojwani vs.
                                                                           B
      Abhyudaya Co-operative Bank Ltd. & Anr (2019) 9
      SCC 158 : [2019] 12 SCR 75; Asset Reconstruction
      Company (India) Limited vs. Bishal Jaiswal and Anr.
      (2021) 6 SCC 366 : 2021 (7) JT 562; Kotak Mahindra
      Bank Ltd. Vs. A. Balakrishnan (2020) SCC OnLine SC
      706; Innoventive Industries Ltd. vs. ICICI Bank & Anr.               C
      (2018) 1 SCC 407 : [2017] 8 SCR 33 – referred to.
                        Case Law Reference
[2018] 14 SCR 926                 referred to               Para 5
[2018] 12 SCR 794                 referred to               Para 10        D
[2019] 12 SCR 678                 referred to               Para 11
[2019] 12 SCR 75                  referred to               Para 13
(2021) 10 SCC 330                 relied on                 Para 17
[2017] 8 SCR 33                   referred to               Para 19        E
      CIVIL APPELLATE JURISDICTION: Civil Appeal No. 2277
of 2021.
      From the Judgment and Order dated 02.03.2021 of the National
Company Law Appellate Tribunal, Delhi in Appeal (AT) (Ins.) No. 90 of
2020.                                                                      F

     Dhruv Mehta, Sr. Adv., Ms. Kusum Lata, Mahesh K. Chaudhary,
Sushmita Chaudhary, Ms. Sushma Das, Advs. for the Appellant.
      Rahul Totala, Rohit Anil Rathi, Advs. for the Respondents.
      The following Order of the Court was passed:                         G
                               ORDER
      1. The order of admission of their petition under Section 7 of the
Insolvency and Bankruptcy Code, 2016 (for short “IBC”) passed by the
National Company Law Tribunal (for short “NCLT”), having been
                                                                           H
382             SUPREME COURT REPORTS                          [2022] 18 S.C.R.


A     reversed by the National Company Law Appellate Tribunal (for short
      “NCLAT”) on the ground that the application was barred by limitation,
      the Financial Creditor-Punjab National Bank has come up with the above
      appeal.
            2. We have heard Shri Dhruv Mehta, learned senior counsel
B     appearing for the appellant and Shri Rahul Totala, learned counsel
      appearing for the respondents.
             3. The appellant herein filed a petition under Section 7 IBC against
      M/s Jailaxmi Sugar Products Pvt. Limited, the Corporate Debtor, who is
      the second respondent herein claiming, inter alia, (i) that vide sanction
C     letters dated 07.05.2010 and 28.09.2010, a term loan was sanctioned to
      the second respondent herein; (ii) that by a letter dated 17.09.2011,
      restructuring of the existing term loans and fresh sanction of term loan
      was granted to the Corporate Debtor; (iii) that the Corporate Debtor
      defaulted in repayment and became a NPA on 31.03.2013; (iv) that the
      appellant issued a demand notice dated 30.04.2013 under Section 13(2)
D     of the Securitisation and Reconstruction of Financial Assets and
      Enforcement of Security Interest Act, 2002; (v) that the Corporate Debtor
      also executed Balance and Security Confirmation letters dated 03.07.2014
      and 17.06.2017; (vi) that the appellant, along with the Union Bank of
      India also filed an application in O.A. No.185 of 2014 on the file of the
E     DRT, Pune for the issue of a certificate of recovery; (vii) that the original
      application was allowed by DRT, Pune by an order dated 01.11.2016,
      directing the Corporate Debtor and others including respondent No.1
      herein to jointly and severally pay to the appellant herein, a sum of around
      Rs.45 cores together with interest @16.25% per annum (apart from the
      amount payable to Union Bank of India); (viii) that the total amount
F     outstanding from the Corporate Debtor as on 13.08.2019 was
      Rs.108,34,33,364.19; and (ix) that in a parallel proceeding, the High Court
      of Judicature at Bombay had passed an order dated 04.01.2018 directing
      the winding up of the Corporate Debtor.
             4. By an order dated 06.11.2019, NCLT admitted the petition of
G     the appellant herein, filed under Section 7 IBC. Challenging the order
      of admission, the first respondent herein, who claims to be a 50%
      shareholder, promoter, director and creditor of the Corporate-Debtor
      filed an appeal before NCLAT. By the order dated 02.03.2021 impugned
      in this appeal, the NCLAT set aside the order of the NCLT on the
H     ground that the claim of the appellant-Financial Creditor was barred
         PUNJAB NATIONAL BANK v. MR. VIJAY SITARAM                             383
                     DANDNAIK & ANR.

by limitation. Aggrieved by the said order, the Financial Creditor is on       A
appeal before us.
      5. Before the NCLAT, the first respondent raised a preliminary
objection that in the light of the order of winding up passed by the High
Court of Judicature at Bombay, an application under Section 7 IBC was
not maintainable. But the said contention raised by the first respondent       B
was rejected by NCLAT on the basis of the decision of this Court in
Jaipur Metals and Electricals Employees Organization vs. Jaipur
Metals and Electricals Ltd. & Ors.1
       6. After overruling the objection relating to maintainability raised
on the basis of the order of winding up, NCLAT took up for consideration       C
the question of limitation. NCLAT opined that the decision of this Court
in Babulal Vardharji Gurjar vs. Veer Gurjar Aluminium Industries
Pvt. Ltd. & Anr.2, clinched the issue on the question of limitation and
that the application under Section 7, filed on 10.10.2019 was beyond a
period of three years from the date of default (NPA) namely 31.03.2013.
The Balance and Security Confirmation Letter dated 17.06.2017 was              D
held by NCLAT to have been given after the expiry of three years from
the date of default and as a consequence, Section 18 of the Limitation
Act was also held to be inapplicable to the case of the appellant. Hence
the present appeal.
       6. But a perusal of the records and a careful consideration of the      E
contentions raised on both sides show that NCLAT failed to take note of
certain important aspects, both on fact and on law. Section 7(1) of the
IBC enables a financial creditor to initiate corporate insolvency resolution
process “when a default has accrued”. The Explanation under sub-
Section (1) of Section 7 makes it clear that a default includes a              F
default in respect of a financial debt owed not only to the applicant-
Financial Creditor but to any other financial creditor of the
Corporate Debtor. The fact that the corporate debtor has been ordered
by the High court of Judicature at Bombay to be wound up, is proof
enough to show that the case falls under the category mentioned in the
Explanation to section 7(1).                                                   G
     7. The word “default” is defined in Section 3(12) of the IBC to
mean “non-payment of debt when whole or any part or instalment
1
    (2019) 4 SCC 227
2
    (2020) 15 SCC 1                                                            H
384               SUPREME COURT REPORTS                       [2022] 18 S.C.R.


A     of the amount of debt has become due and payable and is not paid
      by the debtor or the corporate debtor, as the case may be.”
             8. By Act 26 of 2018, Section 238A was inserted in the IBC to
      provide that the provisions of the Limitation Act, 1963 shall, as far as
      may be, apply to the proceedings or appeals before the Adjudicating
B     Authority and the NCLAT. By virtue of the above amendment, the doubt
      if any, on the question of applicability of the law of limitation to the
      proceedings under the IBC, got cleared.
             9. It may be noted that different provisions of IBC, 2016 came
      into force on different dates. Sections 4 to 32, Sections 60 to 77, Sections
C     198, 231 and 236 to 238 came into force on 01.12.2016, vide SO No.3594
      (E ) dated 30.11.2016.
             10. Act No.26 of 2018, by which Section 238A was inserted, came
      into force on 06.06.2018. Therefore, a question arose in B.K. Educational
      Services Private Limited vs. Parag Gupta and Associates3 as to
D     whether the provisions of the Limitation Act, 1963 would apply to
      applications filed under Sections 7/9 of the IBC on and from its
      commencement on 01.12.2016 till 06.06.2018. This Court took note of
      Section 3(37) of the IBC which makes a reference to the Companies
      Act, 2013, insofar as words and expressions not defined in the IBC are
      concerned and made a reference to Sections 408 and 424 of the
E     Companies Act, 2013 and came to the conclusion that by virtue of Section
      433 of the Companies Act, 2013, the provisions of the Limitation Act will
      apply even to proceedings initiated before the insertion of Section 238A.
      As a consequence, this Court held that Article 137 of the Schedule to
      the Limitation Act, which prescribes a period of three years from the
F     date “when the right to apply accrues”, to any application for which
      no period of limitation is provided elsewhere in the Schedule, will be
      applicable.
             10. The ratio in B.K. Educational Services (supra), found
      elaboration in Jignesh Shah and Anr. vs. Union of India and Anr.4,
G     where this Court held a petition for winding up to be barred by limitation,
      as it was filed beyond a period of three years from the date on which the
      cause of action, as mentioned in an already instituted suit for specific
      performance/damages arose. Two important principles could be deduced
      3
          (2019) 11 SCC 633
      4
H         (2019) 10 SCC 750
      PUNJAB NATIONAL BANK v. MR. VIJAY SITARAM                                  385
                  DANDNAIK & ANR.

from the decision in Jignesh Shah (supra). They are: (i) a suit for              A
recovery based upon a cause of action that is within limitation, cannot in
any manner impact the separate and independent remedy of winding up
proceedings and hence the proceeding for winding up should also have
been initiated before the expiry of the period of limitation; and (ii) in law,
when time begins to run, it can only be extended in the manner provided
                                                                                 B
in the Limitation Act, say for instance, an acknowledgment of liability
under Section 18 of the Limitation Act.
       11. After Jignesh Shah (supra), this Court was concerned in
Babulal Vardharji Gurjar (supra), with a case where one of the
questions that came up for consideration was whether the period of
limitation for filing an application under Section 7 of the IBC, would be        C
different in the case of a debt secured by a mortgage. For answering the
said question, this Court considered all previous decisions of this Court
and enunciated the principles of law as culled out from those decisions
in paragraph 32 as follows:
       “32. When Section 238-A of the Code is read with the above-               D
       noted consistent decisions of this Court in Innoventive Industries,
       B.K. Educational Services, Swiss Ribbons, K. Sashidhar,
       Jignesh Shah, Vashdeo R. Bhojwani, Gaurav Hargovindbhai
       Dave and Sagar Sharma respectively, the following basics
       undoubtedly come to the fore:                                             E
       (a) that the Code is a beneficial legislation intended to put the
       corporate debtor back on its feet and is not a mere money recovery
       legislation;
       (b) that CIRP is not intended to be adversarial to the corporate
       debtor but is aimed at protecting the interests of the corporate          F
       debtor;
       (c) that intention of the Code is not to give a new lease of life to
       debts which are time-barred;
       (d) that the period of limitation for an application seeking initiation
                                                                                 G
       of CIRP under Section 7 of the Code is governed by Article 137 of
       the Limitation Act and is, therefore, three years from the date
       when right to apply accrues;
       (e) that the trigger for initiation of CIRP by a financial creditor is
       default on the part of the corporate debtor, that is to say, that the
                                                                                 H
386                SUPREME COURT REPORTS                         [2022] 18 S.C.R.


A              right to apply under the Code accrues on the date when default
               occurs;
               (f) that default referred to in the Code is that of actual non-payment
               by the corporate debtor when a debt has become due and payable;
               and
B              (g) that if default had occurred over three years prior to the date
               of filing of the application, the application would be time-barred
               save and except in those cases where, on facts, the delay in filing
               may be condoned; and
               (h) an application under Section 7 of the Code is not for
C              enforcement of mortgage liability and Article 62 of the Limitation
               Act does not apply to this application.”
             12. After answering the question relating to a debt secured by a
      mortgage as aforesaid, this Court took up for consideration in Babulal,
      the question regarding applicability of Section 18 of the Limitation Act.
D     Though the decision in Jignesh Singh was by a three member Bench
      which held in paragraph 21 of its decision that “in law when time begins
      to run it can only be extended in the manner provided in the Limitation
      Act”, it was held in Babulal (by a 2 member Bench) that Limitation
      would begin to run from the date of NPA itself. To come to the said
E     conclusion, this Court referred to the decision in Vashdeo R. Bhojwani
      vs. Abhyudaya Co-operative Bank Ltd. & Anr.5
             13. But Vashdeo R. Bhojwani (supra) was a case where the
      debt was declared as NPA in 1999 and a Recovery Certificate was
      issued in 2001, but the petition under Section 7 IBC was filed in 2017. It
F     is only because of this, that this Court held in Vashdeo R. Bhojwani that
      when the Recovery Certificate dated 24.12.2001 was issued, that
      Certificate injured effectively and completely the appellant’s rights,
      as a result of which limitation would have begun ticking.
             14. In other words, this Court found in Vashdeo R. Bhojwani,
      that the application under Section 7 was filed beyond a period of three
G
      years from the date of the certificate of recovery and not from the date
      of declaration of NPA. Therefore, the somewhat discordant note struck
      in Babulal, did not and could not have altered the ratio laid down in
      paragraph 21 of Jignesh Shah. The cloud of doubt created by Babulal
      5
H         (2019) 9 SCC 158
         PUNJAB NATIONAL BANK v. MR. VIJAY SITARAM                               387
                     DANDNAIK & ANR.

with regard to the applicability of Section 18 of the Limitation Act stood       A
cleared subsequently in Asset Reconstruction Company (India) Limited
vs. Bishal Jaiswal and Anr.6, wherein this Court went to the extent of
holding that an entry in the balance sheet of the company could also be
treated as an acknowledgment in writing, subject however to any caveat
found in the accompanying reports.
                                                                                 B
      15. In any case, this Court clarified in Dena Bank vs. C.
Shivakumar Reddy and Another7 that Babulal was rendered in the
particular facts of the case. It will be relevant to take note of the
discussion in paragraph 105 to 107 of the decision in Dena Bank (supra)
which reads as follows:
                                                                                 C
         “105. The judgment of this Court in Babulal Vardharji Gurjar
         was rendered in the facts of the aforesaid case, where the date
         of default had been mentioned a 8-7-2011 being the date of NPA
         and it remained undisputed that there had neither been any other
         date of default stated in the application nor had any suggestion
         about any acknowledgment been made.                                     D
         106. In the backdrop of the aforesaid facts, this Court observed
         that even if Section 18 of the Limitation Act and principle thereof
         were applicable, the same would not apply to the application
         under consideration, in view of the averments regarding default
         therein and for want of any other averment with regard to               E
         acknowledgment.
         107. It is well settled, that a judgment is a precedent for the issue
         of law that is raised and decided and not any observations made
         in the facts of the case. As very aptly penned by V. Sudhish Pai in
         Constitutional Supremacy-A Revisit,                                     F
              “Judicial utterances/pronouncements are in the setting of the
             facts of a particular case. To interpret words and provisions of
             a statute it may become necessary for Judges to embark upon
             lengthy discussions, but such discussion is meant to explain not
             define. Judges interpret statutes, their words are not to be
                                                                                 G
             interpreted as statutes.”
         The aforesaid passage was extracted and incorporated as part of
         the judgment of this Court in Sesh Nath Singh.”
6
    (2021) 6 SCC 366
7
    (2021) 10 SCC 330                                                            H
388               SUPREME COURT REPORTS                       [2022] 18 S.C.R.


A             16. The correctness of the decision in Dena Bank (supra) was
      questioned by a corporate debtor in Kotak Mahindra Bank Ltd. Vs. A.
      Balakrishnan8 wherein it was contended that the decision in Dena Bank
      (supra) was per incuriam, on the ground it did not take into account
      sub-Sections (22) and (22A) of Section 19 of the Recovery of Debts
      Due to Banks and Financial Institutions Act, 1993 (hereinafter referred
B
      to as DRT Act) as well as Clauses (6), (10), (11) and (12) of Section 3,
      Clauses (7) and (8) of Section 5, Section 6 and Section 14(1A) of IBC.
      While rejecting the said contention, this Court reiterated in no uncertain
      terms in Kotak Mahindra Bank (supra) that a person would be entitled
      to initiate CIRP within a period of three years from the date on which
C     the recovery certificate is issued by DRT.
             17. Therefore, Dena Bank holds the field as on date. In the case
      on hand, the order of the Debt Recovery Tribunal in the Original
      Application filed by the appellant under Section 19 of the Act, 1993, is
      dated 01.11.2016. It is only thereafter that the Corporate Debtor issued
D     Balance and Security Confirmation letter dated 17.06.2017, apart from
      making a request for restructuring the loan. Therefore, the application
      filed by the appellant under Section 7 was clearly within three years
      from the date on which the “right to apply” in terms of Article 137
      accrued. Hence the impugned order of the NCLAT, which places heavy
      reliance only upon Babulal, is not correct.
E
             18. Before parting, we cannot resist the temptation to point out an
      incongruity in the way the law has developed. The Limitation Act, 1963,
      as is well understood, extinguishes the remedy and not the right. This is
      why the Act itself contains several provisions for the exclusion of time,
      while computing the period of limitation.
F
              19. Consistently this Court has held that the initiation of CIRP
      under the IBC is to put the corporate debtor back on its feet, by retaining
      the substratum, even while replacing the management with a new team
      (Resolution Applicant). In other words, the object of IBC has been
      understood to be something that is beneficial for the corporate debtor so
G     that it continues to survive as a going concern. As pointed out by this
      Court in Innoventive Industries Ltd. vs. ICICI Bank & Anr.9, “…the
      scheme of the Code, therefore, is to make an attempt, by divesting

      8
          (2020) SCC OnLine SC 706
      9
H         (2018) 1 SCC 407
      PUNJAB NATIONAL BANK v. MR. VIJAY SITARAM                                  389
                  DANDNAIK & ANR.

the erstwhile management of its powers and vesting it in a                       A
professional agency, to continue the business of the corporate body
as a going concern until a resolution plan is drawn up, in which
event the management is handed over under the plan so that the
corporate body is able to pay back its debts and get back on its
feet…” (paragraph 33 of the decision).
                                                                                 B
       20. In other words, IBC is projected as a law which enables the
financial/operational creditor to initiate CIRP, not for helping himself out
with the recovery of the debt due to him, but for helping the corporate
debtor to survive and continue in business. A financial/operational creditor
does not go to court or other forum with the altruistic mission of helping
                                                                                 C
the corporate debtor to continue as a going concern. But after repeatedly
holding that the proceedings under the IBC are not in substance,
proceedings for recovery of money, this Court and the statute have
effectively applied the law of limitation, which was intended to apply to
proceedings for enforcement of rights.
       21. It may be pointed out that the Schedule to the Limitation Act,        D
1963 is divided into three divisions. The First division relates to suits, the
Second division relates to appeals and the Third division relates to
applications. The First division which relates to Suits is divided into 10
parts which deal respectively with:-
       (i)     Suits relating to accounts;                                       E

       (ii)    Suits relating to contracts;
       (iii)   Suits relating to declarations;
       (iv)    Suits relating to decrees and instruments;
                                                                                 F
       (v)     Suits relating to immovable property;
       (vi)    Suits relating to movable property;
       (vii)   Suits relating to Tort;
       (viii) Suits relating to Trust and Trust property;                        G
       (ix)    Suits relating to miscellaneous matters; and
       (x)     Suits for which no period is prescribed.
      22. The Second division of the Schedule to the Limitation Act
deals with appeals. The Third division of the Schedule to the Limitation
                                                                                 H
390             SUPREME COURT REPORTS                         [2022] 18 S.C.R.


A     Act is again divided into two parts, with Part-I dealing with applications
      in specified cases and Part-II dealing with other applications.
             23. For the law of limitation, the remedy is the goal post and
      the right is the sign post from where the journey commences. A
      person initiating any proceeding in a court of law must show the existence
B     of both a right in himself and a remedy for himself, but the IBC is a law
      where the sign post namely the right is for the financial/ operational
      creditor and the goal post namely the remedy, is for the corporate debtor,
      though the creditor may also recover a portion of his debt after having a
      hair-cut, if not a tonsure. This incongruity has perhaps led this Court
C     undertaking an arduous journey through the path of limitation and trying
      to negotiate its way through several bad patches.
             24. Now coming back to the case on hand, the application filed by
      the appellant-Bank under Section 7 IBC was within the period of limitation.
      Therefore this appeal is allowed and the impugned order of the NCLAT
D     dated 02.03.2021 is set aside. No order as to costs.

      Nidhi Jain                                                   Appeal allowed.
      (Assisted by : Tamana, LCRA)



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G




H