Supreme Court of India
SABARMATI GAS LIMITEDversusSHAH ALLOYS LIMITED
- Citation
- 2023 INSC 10
- Decided
- 4 January 2023
- Disposal
- Dismissed
- Bench
- AJAY RASTOGI
Holding
The limitation period for a Section 9 IBC application is three years from the date of default, subject to condonation under Section 5 of the Limitation Act, and the existence of a pre‑existing dispute justifies dismissal of the application.
Summary
Sabarmati Gas Ltd. entered into a gas‑sale agreement with Shah Alloys Ltd., which later defaulted on payments. The respondent was declared a 'sick company' by the BIFR, invoking a moratorium under SICA that barred legal recovery until the Code came into force on 1‑Dec‑2016. After issuing a demand notice under Section 8 of the IBC, the appellant filed a Section 9 application for CIRP, which the NCLT and NCLAT dismissed on grounds of limitation and a pre‑existing dispute. The Supreme Court held that the limitation period for a Section 9 application runs from the date of default (three years under Article 137 of the Limitation Act) and may be extended only on sufficient cause under Section 5, and that a pre‑existing dispute existed, justifying dismissal. Consequently, the appeal was dismissed, leaving the lower tribunals' orders intact.
Issues considered
- Whether the period of suspension under Section 22(1) of the Sick Industrial Companies (Special Provisions) Act, 1985 can be excluded when computing the limitation period for a Section 9 IBC application.
- Whether the respondent raised a 'pre‑existing dispute' that warrants dismissal of the Section 9 application at the threshold.
Legislation cited
- Insolvency and Bankruptcy (Application to Adjudicating Authority) Rules, 2016s. Form No. 3, s. Rule 5
- Insolvency and Bankruptcy Code, 2016s. 238A, s. 252, s. 6, s. 62, s. 8, s. 9
- Limitation Act, 1963s. 14, s. 5, s. Article 137
- Sick Industrial Companies (Special Provisions) Act, 1985s. 16, s. 17, s. 22, s. 25
Subjects
insolvencybankruptcylimitation periodpre‑existing disputeoperational creditorSection 9 IBCSection 8 IBCSICACIRPcorporate debtor
Judgment
188 [2023]REPORTS
SUPREME COURT 4 S.C.R. 188 [2023] 4 S.C.R.
A SABARMATI GAS LIMITED
v.
SHAH ALLOYS LIMITED
(Civil Appeal No. 1669 of 2020)
B JANUARY 04, 2023
[AJAY RASTOGI AND C. T. RAVIKUMAR, JJ.]
Insolvency and Bankruptcy Code, 2016 – ss. 6, 8, 9, 62, 238A,
252 – Sick Industrial Companies (Special Provisions) Act, 1985 –
ss. 16, 17, 22, 25 – Limitation Act, 1963 – s.5,14 and Art. 137 –
C
Insolvency and Bankruptcy (Application to Adjudicating Authority),
Rules 2016 – r. 5, Form no. 3 – Appellant and respondent entered
into a Gas Sales Agreement (GSA) whereunder the appellant was
having the obligation to supply natural gas – Thereafter, the
respondent made default in the payment of the invoices – Respondent
D approached BIFR and it was declared a ‘sick unit’ – Appellant sought
the permission of the BIFR for initiating proceedings against the
respondent for recovery of outstanding dues – Shortly thereafter,
the SICA was repealed w.e.f 01.12.2016 by coming into force of
IBC – Upon BIFR becoming functus officio, appellant issued demand
notice u/s.8 of IBC – Respondent declined the liability to pay the
E
amount demanded – Appellant filed an application u/s. 9 of the IBC
before NCLT seeking initiation of CIRP in its capacity as operational
creditor of the respondent – The said application was dismissed by
the NCLT on the grounds of being barred by limitation and existence
of a ‘pre-existing dispute’ between the appellant and the respondent
F – The appeal against the decision of NCLT was also dismissed by
NCLAT – Issues before the Supreme Court: Whether in computation
of the period of limitation in regard to an application filed u/s. 9,
IBC the period during which the operational creditor’s right to
proceed against or sue the corporate debtor that remain suspended
by virtue of s.22 (1) of the Sick Industrial Companies (Special
G
Provisions Act, 1985) (SICA) can be excluded, as provided u/s.22
(5) of SICA and Whether the respondent has raised a dispute which
is describable as ‘pre-existing dispute’ between itself and the
appellant warranting dismissal of application u/s. 9 of the IBC at
the threshold – Held: When the limitation period for initiating CIRP
H u/s. 9, IBC is to be reckoned from the date of default, as opposed to
188
SABARMATI GAS LIMITED v. SHAH ALLOYS LIMITED 189
the date of commencement of IBC and the period prescribed therefor, A
is three years as provided by s.137 of the Limitation Act, 1963 and
the same would commence from the date of default and is extendable
only by application of s.5 of the Limitation Act, 1963 it is incumbent
on the Adjudicating Authority to consider the claim for condonation
of the delay – In the absence of provisions for exclusion of period
B
in respect of an application u/s. 9, IBC, despite the combined reading
of s.238A, IBC and the provisions under the Limitation Act what is
legally available to such a party is to assign the same as a sufficient
cause for condoning the delay u/s. 5 of the Limitation Act – As far
as ‘pre-existing dispute is concerned’, considering the nature of
the dispute of the respondent as referred hereinbefore in respect of C
the claim made by the appellant, there is no reason to disagree with
the concurrent findings of the Tribunals that there existed a ‘pre-
existing dispute’ between the parties before the receipt of demand
notice u/s. 8, IBC – The dismissal of the application u/s. 9, IBC on
the ground of ‘pre-existing dispute’ cannot be held to be patently
D
illegal or perverse.
Dismissing the appeal, the Court
HELD: 1. With respect to Section 7, IBC will proprio vigore
apply to Section 9, IBC. In short, as relates an application under
Section 9, IBC the date of coming into force of IBC, viz, E
01.12.2016 would not form the trigger point of limitation and the
period of limitation for an application for initiating of CIRP under
Section 9, IBC would be three years from the date when the right
to apply accrues as provided by Article 137 of the Limitation Act
and further that the right to apply under the IBC would accrue on
the date when default occurs and it is extendable only by F
application of Section 5 of the Limitation Act. [Para 23][209-E-F]
2. When the limitation period for initiating CIRP under
Section 9, IBC is to be reckoned from the date of default, as
opposed to the date of commencement of IBC and the period
prescribed therefor, is three years as provided by Section 137 of G
the Limitation Act, 1963 and the same would commence from
the date of default and is extendable only by application of Section
5 of the Limitation Act, 1963 it is incumbent on the Adjudicating
Authority to consider the claim for condonation of the delay when
H
190 SUPREME COURT REPORTS [2023] 4 S.C.R.
A once the proceeding concerned is found filed beyond the period
of limitation. As relates Section 5 of the Limitation Act showing
‘sufficient cause’ is the only criterion for condoning delay.
‘Sufficient Cause’ is the cause for which a party could not be
blamed. There is a legal bar for initiation of proceedings against
B an industrial company by virtue of Section 22 (1), SICA and
obviously, when a party was thus legally disabled from resorting
to legal proceeding for recovering the outstanding dues without
the permission of BIFR and even on application permission
therefor was not given the period of suspension of excludable in
legal proceedings is computing the period of limitation for the
C enforcement of such right in terms of Section 22(5), SICA. In the
absence of provisions for exclusion of such period in respect of
an application under Section 9, IBC, despite the combined reading
of Section 238A, IBC and the provisions under the Limitation
Act what is legally available to such a party is to assign the same
D as a sufficient cause for condoning the delay under Section 5 of
the Limitation Act. In such eventuality, in accordance with the
factual position obtained in any particular case viz., the period of
delay and the period covered by suspension of right under Section
22 (1), SICA etc., the question of condonation of delay has to be
considered lest it will result in injustice as the party was statutorily
E
prevented from initiating action against the industrial company
concerned. [Paras 24, 25][209-H; 210-A-F]
3. The existence of a ‘pre-existing dispute’ should entail
dismissal of an application filed under Section 9 IBC at the
threshold. Therefore, the question is whether the respondent
F
had raised a dispute describable as a ‘pre- existing dispute’ so as
to entail dismissal of application of the appellant under Section 9,
IBC. In the contextual situation it is only apposite to be remindful
of the observation in Mobilox Innovations (P) Ltd. that in doing
the act of separating the grain from chaff the Court need not to
G be satisfied that the defence is likely to succeed. It is enough
that a dispute exists between the parties and in other words,
what is to be seen is whether there was a plausible contention
requiring investigation for the purpose of adjudication. Taking
note of the nature of the dispute of the respondent as referred
H
SABARMATI GAS LIMITED v. SHAH ALLOYS LIMITED 191
hereinbefore in respect of the claim made by the appellant, there A
is no reason to disagree with the concurrent findings of the
Tribunals that there existed a ‘pre-existing dispute’ between the
parties before the receipt of demand notice under Section 8, IBC.
In other words, the dismissal of the application under Section 9,
IBC on the ground of ‘pre-existing dispute’ cannot be held to be B
patently illegal or perverse. [Paras 32, 38][213-A-B; 217-E-G]
Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd.
(2018) 1 SCC 353; B.K. Educational Services Private
Limited v. Parag Gupta and Associates (2019) 11 SCC
633 : [2018] 12 SCR 794; Babulal Vardharji Gurjar v. C
Veer Gurjar Aluminium Industries Private Limited and
Anr. (2020) 15 SCC 1; Macquarie Bank Limited v. Shilpi
Cable Technologies Limited (2018) 2 SCC 674 : [2017]
13 SCR 751 – relied on.
Paramjeet Singh Patheja v. ICDS Ltd. (2006) 13 SCC D
322 : [2006] 8 Suppl. SCR 178; Kailash Nath Agarwal
and Ors. v. Pradeshiya Industrial & Investment
Corporation of U.P. Ltd. and Anr. (2003) 4 SCC 305 :
[2003] 1 SCR 1159; KSL & Industries Ltd. v. M/s.
Arihant Threads Ltd. (2015) 1 SCC 166 : [2014] 14
E
SCR 1097; Innoventive Industries Ltd. v. ICICI Bank
and Anr. (2018) 1 SCC 407 : [2017] 8 SCR 33 –
referred to.
Case Law Reference
[2006] 8 Suppl. SCR 178 referred to Para 6 F
[2003] 1 SCR 1159 referred to Para 11
[2014] 14 SCR 1097 referred to Para 12
[2018] 12 SCR 794 relied on Para 20
(2020) 15 SCC 1 referred to Para 21 G
[2017] 13 SCR 751 relied on Para 27
[2017] 8 SCR 33 referred to Para 31
H
192 SUPREME COURT REPORTS [2023] 4 S.C.R.
A CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1669
of 2020.
From the Judgment and Order dated 19.12.2019 of the National
Company Law Appellate Tribunal, New Delhi in Company Appeal (AT)
(Insolvency) No. 820 of 2019.
B
Shyam Divan, Sr. Adv., Piyush Joshi, Senthil Jagadeesan, Ms.
Sumiti Yadava, Ms. Sonakshi Malhan, Sajal Jain, Ms. Pemya Raj, Advs.
for the Appellant.
Gurukrishna Kumar, Sr. Adv., Ms. Gauri Rasgotra, Sumit Attri,
C Ms. Ritu Anand Vishwakarma, Satatya Anand, Ms. Ena Kapur, M/s.
Cyril Amarchand Mangaldas, Advs. for the Respondent.
The Judgment of the Court was delivered by
C. T. RAVIKUMAR, J.
D 1. This appeal under Section 62 of the Insolvency and Bankruptcy
Code, 2016 (IBC) is preferred by Sabarmati Gas Limited (hereinafter
referred to as the appellant) against the final judgment dated 19.12.2019
of the National Company Law Appellate Tribunal (NCLAT) in Company
Appeal (AT) (Insolvency) No. 820 of 2019. As per the same the NCLAT
E dismissed the appeal preferred by the appellant against order dated
27.06.2019 in CP (IB) No. 516/9/NCLT/AHM/2018 of the National
Company Law Tribunal, Ahmedabad Bench, (NCLT) dismissing the
application filed under Section 9 of the IBC, in its capacity as operational
creditor of ‘Shah Alloys Limited’ (hereinafter referred to as the
‘respondent’).
F
2. In the captioned appeal mainly, twin questions of law call for
consideration id est :-
(i) Whether in computation of the period of limitation in
regard to an application filed under Section 9, IBC the
G period during which the operational creditor’s right to
proceed against or sue the corporate debtor that remain
suspended by virtue of Section 22 (1) of the Sick
Industrial Companies (Special Provisions Act, 1985)
(SICA) can be excluded, as provided under Section 22
H (5) of SICA?
SABARMATI GAS LIMITED v. SHAH ALLOYS LIMITED 193
[C. T. RAVIKUMAR, J.]
(ii) Whether the respondent has raised a dispute which is A
describable as ‘pre-existing dispute’ between itself and
the appellant warranting dismissal of application under
Section 9 of the IBC at the threshold?
While considering the stated twin questions certain other allied
questions of relevance may also crop up for consideration, which we B
will state and consider at the appropriate time. The respondent -corporate
debtor was the petitioner in Case No. 13 of 2010 before the Board for
Industrial and Financial Re-construction (BIFR) and the appellant herein
was the applicant in Miscellaneous Application No. 432 of 2013 in Case
No. 13 of 2010.
C
3. Heard learned Senior Counsel for the appellant Shri Shyam
Divan and Mr. S. Guru Krishna Kumar, learned Senior Counsel for the
respondent.
4. Consideration of the questions, mentioned above and to be
mentioned hereinafter, is called for, in the following factual background: D
The respondent, for its manufacturing needs, required commercial
supply of natural gas. To facilitate the same on 30.05.2008 the appellant
and the respondent entered into a Gas Sales Agreement (GSA) whereby
and whereunder the appellant was having the obligation to supply natural
gas conforming to the specifications laid down in Annexure-2, appended E
to GSA and it also forms part of the contract. Going by clause 11.2 of
GSA, notwithstanding any dispute in relation to any amount invoiced, the
respondent could not withhold payment in accordance with the GSA.
According to the appellant, the respondent defaulted payment of invoices
inasmuch as it made only partial irregular payments from November,
F
2011. Meanwhile, the respondent approached BIFR to get it declared as
a ‘sick unit’ and for recommendation of a plan for its rehabilitation, in
terms of the provisions under SICA. The reference was admitted by
BIFR as case No. 13 of 2010 and as per order dated 31.08.2010 the
respondent was declared as a ‘sick company’. It is the case of the
appellant that by virtue of Section 22 of SICA there was a moratorium G
on the respondent and therefore, it could not have proceeded against the
respondent for outstanding dues, thenceforth, without obtaining the
permission of the BIFR. On 07.08.2012 the appellant stopped the gas
supply and then, intervened in the pending proceedings before the BIFR
viz., 13 of 2010. On 08.03.2013, as per Miscellaneous Application No. H
194 SUPREME COURT REPORTS [2023] 4 S.C.R.
A 432 of 2013 the appellant sought permission of the BIFR for initiating
proceedings against the respondent for recovery of an outstanding dues
of Rs. 4,71,56,095/-. On 09.09.2015, the BIFR passed an order thereon.
Shortly thereafter, to be precise, w.e.f. 01.12.2016, SICA was repealed.
5. According to the appellant, BIFR became functus officio and
B all proceedings pending before it, including the case of the respondent,
were abated and several sections of IBC, including Sections 8 and 9,
came into effect on 01.12.2016. Hence, after the enactment of IBC, the
appellant issued a demand notice on 01.04.2017, under Section 8 of the
IBC read with Rule 5 of the Insolvency and Bankruptcy (Application to
Adjudicating Authority), Rules 2016, in Form No. 3 demanding payment
C
of operational debt of Rs. 4,71,56,094.76/-. On 10.04.2017, the respondent
gave a reply to the aforesaid demand notice stating that there was shortfall
in supply of natural gas and also a huge loss due to the disconnection of
gas supply. Raising such contentions, the respondent declined the liability
to pay the amount demanded. Thereafter, the appellant filed an application
D under Section 9 of the IBC before NCLT, Ahmedabad seeking initiation
of Corporate Insolvency Resolution Process (CIRP) in its capacity as
Operational Creditor of the respondent. The said application was dismissed
by the NCLT as per order dated 27.06.2019 on the grounds of being
barred by limitation and existence of a ‘pre-existing dispute’ between
the appellant and the respondent. It is the appeal challenging the same
E
before the NCLAT that ultimately culminated in the impugned judgment.
6. We will firstly consider the first question of law arising on
account of dismissal of the appellant’s application under Section 9, IBC
on the ground of being barred by limitation. In the light of the aforesaid
factual backdrop and contentions the appellant would contend that the
F
NCLT and NCLAT had failed to look into and appreciate the cumulative
effect of sub-sections (1) and (5) of Section 22 of SICA while dismissing
the application under Section 9, IBC as barred by limitation. In elaboration
of the contention, it is submitted that the NCLT and NCLAT had failed
to appreciate that the respondent was admitted as a ‘sick company’ by
G the BIFR as per its order dated 31.08.2010 and hence, by virtue of sub-
section (5) of Section 22, SICA the period of suspension under SICA
viz., from 31.08.2010 to 01.12.2016, ought to have been excluded while
calculating the period of limitation. According to the appellant, since the
application under Section 9, IBC was filed on 20.08.2018 granting the
benefit of such exclusion would have, certainly, put the application well
H
SABARMATI GAS LIMITED v. SHAH ALLOYS LIMITED 195
[C. T. RAVIKUMAR, J.]
within the limitation period of 3 years as provided under Article 137 of A
the Limitation Act. The learned counsel for the appellant placed reliance
on the decision in Paramjeet Singh Patheja v. ICDS Ltd.1, particularly
paragraph 43 (vii) therein, to support the contention that there was a
statutory bar for laying or continuing with any legal proceeding for
realisation of a right vested by law on the appellant.
B
7. Resisting the contentions of the appellant and supporting the
impugned judgment the respondent would contend that both NCLT and
NCLAT had rightly appreciated the factual positions thereon obtained in
the case on hand and appliedthe provisions correctly, to arrive at the
finding that the application filed by the appellant under Section 9, IBC
C
was barred by limitation. According to the respondent there is discrepancy
between the stand of the appellant in the Section 9 application and the
Demand Notice under Section 8, of the IBC as relates the quantum of
alleged outstanding dues. It is also contended that such a discrepancy
also exists with respect to the date of cause of action inasmuch as going
by Section 9 application the alleged debt fell due on and from November, D
2011 and as per the Demand Notice the so-called debt fell due on and
from 9th July, 2012 and in either case, Section 9 application was barred
by limitation as it was filed only in the year 2018. To wit, beyond 3 years
from the alleged default. The benefit of exclusion of period under Section
22(5) of the SICA is not available to the appellant for computing the
E
period of limitation in respect of an application under Section 9, IBC, it is
further contended. According to the respondent, Section 22 (1), SICA
did not accord a blanket protection against running of cause of action
and it is intended to suspend legal proceedings of coercive nature so as
to secure assets of an enterprise. In other words, the contention is that
filing application for recovery was permissible and Section 22 (1), SICA F
did not forbid the same and it interdicted only execution or distress or the
like against the properties of the industrial company concerned in the
contingencies contemplated thereof.
8. When Sections 8 and 9, IBC came into force only with effect
from 01.12.2016, the question of initiation of the CIRP by filing an G
application under Section 9 was possible only from 01.12.2016. But the
question is whether any party, which falls under the expression
‘Operational Creditor’ under the IBC claims to have operational debt
1
(2006) 13 SCC 322 H
196 SUPREME COURT REPORTS [2023] 4 S.C.R.
A due from an industrial company and the cause of action for recovery of
the same had accrued much earlier than 01.12.2016, but prevented from
enforcing the right against such company in view of statutory prohibition
under Section 22 (1), SICA, could initiate CIRP despite the passage of
three years since the cause of action claiming the protection of exclusion
of the period of suspension by virtue of Section 22 (5), SICA?
B
8.1 In that context it is only apt to refer to the afore-mentioned
relevant provisions under SICA. Section 22(1), SICA was as follows:
“22. Suspension of legal proceedings, contracts, etc. – (1)
Where in respect of an industrial company, an inquiry under
C section 16 is pending or any scheme referred to under section
17 is under preparation or consideration or a sanctioned
scheme is under implementation or where an appeal under
section 25 relating to an industrial company is pending, then,
notwithstanding anything contained in the Companies Act,
1956 (1 of 1956) or any other law or the memorandum and
D articles of association of the industrial company or any other
instrument having effect under the said Act or other law, no
proceedings for the winding up of the industrial company or
for execution, distress or the like against any of the properties
of the industrial company or for the appointment of a receiver
E in respect thereof [and no suit for the recovery of money or
for the enforcement of any security against the industrial
company or of any guarantee in respect of any loans or
advance granted to the industrial company] shall lie or be
proceeded with further, except with the consent of the Board
or, as the case may be, the Appellate Authority.”
F
8.2 Section 22(5), SICA, relied on by the appellant for seeking
exclusion of the period from 31.08.2010 to 01.12.2016 while computing
the period of limitation, was as hereunder: -
“22. Suspension of legal proceedings, contracts, etc. –
G (1)…
(2)…
(3)…
(4)…
H
SABARMATI GAS LIMITED v. SHAH ALLOYS LIMITED 197
[C. T. RAVIKUMAR, J.]
(5) In computing the period of limitation for the enforcement A
of any right, privilege, obligation or liability, the period during
which it or the remedy for the enforcement thereof remains
suspended under this section shall be excluded.”
9. Thus, Section 22 (1), SICA as extracted above, would make it
clear that there was a statutory bar to take to any proceeding for B
realisation of a right referred to in the said Section against an industrial
company when once an enquiry under Section 16, SICA is pending
against it or any scheme referred to under Section 17 thereof is under
preparation or consideration or a sanctioned scheme is under
implementation or where an appeal under Section 25 relating to an
industrial company is pending, except with the consent of the Board or C
the Appellate Authority, as the case may be. As noticed earlier, SICA
came to be repealed and IBC came into force (Sections 7 to 9 and
various other Sections), on the same day viz, on 01.12.2016.
10. A two-Judge Bench decision of this Court in Paramjeet
Singh Patheja’s case (supra), more particularly, paragraph 43 (vii), D
is relied on by the appellant to support its claim for exclusion of the
period from 31.08.2010 to 01.12.2016 while computing the period of
limitation for filing applicants under Section 9, IBC. It, in so far as
relevant reads thus: -
“43. For the foregoing discussions we hold: E
(i)
(ii)
(iii)
F
(iv)
(v)
(vi)
………
G
(vii) It is a well-established rule that a provision must be
construed in a manner which would give effect to its purpose
and to cure the mischief in the light of which it was enacted.
The object of Section 22, in protecting guarantors from legal
proceedings pending a reference to BIFR of the principal
H
198 SUPREME COURT REPORTS [2023] 4 S.C.R.
A debtor, is to ensure that a scheme for rehabilitation would not
be defeated by isolated proceedings adopted against the
guarantors of a sick company. To achieve that purpose,it is
imperative that the expression “suit” in Section 22 be given
its plain meaning, namely, any proceedings adopted for
realization of a right vested in a party by law. This would
B
clearly include arbitration proceedings.”
(Emphasis added)
11. In the light of the position settled thus, in Paramjeet Singh
Patheja’s Case (supra), it is relevant to refer to an earlier two-Judge
C Bench decision of this court in Kailash Nath Agarwal and Ors. v.
Pradeshiya Industrial & Investment Corporation of U.P. Ltd. and
Anr.2 That was also a case, involving consideration of the question as to
whether Section 22, SICA, afford protection to guarantors of sick
company or only to the sick company. It is relevant to note in this context
that the decision in Kailash Nath Agarwal’s Case (supra)was not
D brought to the notice of the later bench while deciding Paramjeet Singh
Patheja’s Case (supra). In other words, the latter case was decided
per incuriam. In Kailash Nath Agarwal’s Case, after considering
contentions akin to those raised in Paramjeet Singh Patheja’s Case,
this court held that the words “proceedings” and again “suit” had to be
E construed differently as carrying different meanings, since, they had
been raised to denote different things. It was concluded that Section 22
(1), SICA only prohibits recovery against the industrial company and
there would be no protection offered to guarantors against the recovery
proceedings.
12. The above conflicting decisions need not detain us from
F
considering the issue further in the light of a subsequent three-Judge
Bench decision of this court in KSL & Industries Ltd. Vs. M/s. Arihant
Threads Ltd3. The three-judge bench, after noting the contentions raised
before and the findings of the two-judge bench in Kailash Nath
Agarwal’s case (supra), found that it did not deal with the question
G regarding the scope of protection afforded to the industrial company
concerned, under Section 22 (1) of SICA. Having observed thus, the
three-Judge Bench went on to consider the said question. In that regard,
paragraphs 32, 33 and 53 are relevant and reads thus:
2
(2003) 4 SCC 305
H 3
(2015) 1 SCC 166
SABARMATI GAS LIMITED v. SHAH ALLOYS LIMITED 199
[C. T. RAVIKUMAR, J.]
“32. As observed earlier, Sub-section (1) of Section 22 may A
be divided into two parts. In one part, it provides that “no
proceedings’’ be instituted for the winding up of the industrial
company or for execution, distress or the like against any of
the properties of such industrial company, and in the second
part it provides that “no suit” for the recovery of money or
B
for the enforcement of any security against the industrial
company or of any guarantee in respect of any loans or
advances granted to the industrial company, “shall lie or be
proceeded with further, except with the consent of the Board
or, as the case may be, the Appellate Authority.”
33. Undoubtedly, the present proceedings viz. “application C
for recovery” cannot specifically be described as proceedings
for execution, distress or the like against any of the properties,
but it is certainly a proceeding which results in and in fact
had resulted in the execution and distress against the property
of the Company and is therefore liable to be construed as a D
proceeding for the execution, distress or the like against any
of the properties of the industrial company. We are of the
view that such a construction would be within the intendment
of Parliament wherever the proceedings for recovery of a debt
which has been secured by a mortgage or pledge of the
property of the borrower are instituted. Surely, there is no E
purpose in construing that Parliament intended that such an
application for recovery by summary procedure should lie or
be proceeded with, but only its execution be interdicted or
inhibited especially. In this context, it may be remembered that
the proceedings by way of an application for recovery F
according to a summary procedure as provided under the
RDDB Act are not referred to in Section 22 simply because
the RDDB Act had not then been enacted.
53. Moreover, we have found nothing contrary in the intention
of the SICA to exclude a recovery application from the purview G
of Section 22, indeed there could be no reason for such
exclusion since the purpose of the provision is to protect the
properties of a sick company, so that they may be dealt with
in the best possible way for the purpose of its revival by the
BIFR. In State of Punjab v. The Okara Grain Buyers Syndicate
H
200 SUPREME COURT REPORTS [2023] 4 S.C.R.
A Ltd. MANU/SC/0023/1963: AIR 1964 SC 669, the Court
articulated the importance of preserving the beneficent
purpose of the statute and observed:
14. … We shall therefore proceed to examine the provisions
of the Act on the footing that the test for determining
B whether the Government is bound by a statute is whether
it is expressly named in the provision which it is contended
binds it, or whether it “is manifest that from the terms of
the statute, that it was the intention of the legislature that it
shall be bound”, and that the intention to bind would be
clearly made out if the beneficent purpose of the statute
C would be wholly frustrated unless the Government were
bound.”
13. Thus, it is obvious that the three-Judge Bench in KSL &
Industries Ltd. (supra) considered the question whether a recovery
application under the Recovery of Debts Due to Banks and Financial
D Institutions Act, 1963 (RDDB Act) would lie or be proceeded with against
a sick company in view of the Bar contained in Section 22 (1) of SICA.
Evidently, even after finding that an ‘application for recovery’ under
RDDB Act could not specifically be described as proceedings for
execution, distress or the like against any of the properties, it was held
E that it is certainly a proceeding which may result in the execution and
distress against the property of the company and is therefore, liable to
be construed as a proceeding for the execution, distress or the like against
any of the properties of the industrial company. Accordingly, it was held
that such a construction would be within the intendment of the Parliament.
Moreover, it was held therein that there would be no purpose in construing
F the Parliament intended that such an application for recovery by summary
procedure should lie or be proceeded with, but only its execution be
interdicted or inhibited. That apart the three-Judge Bench found nothing
contrary in the intention of the SICA to exclude a recovery application
from the purview of a Section 22 thereof, taking note of the fact that the
G purpose of the said provision is to protect the properties of sick company,
so that they may be dealt with in the best possible way for the purpose
of its revival by BIFR.
14. In view of the provisions under Section 22 (1) of SICA and
the decisions in Paramjeet Singh case (Supra) and in KSL & Industries
H Limited (supra), it is worthwhile to note that in the case on hand it was
SABARMATI GAS LIMITED v. SHAH ALLOYS LIMITED 201
[C. T. RAVIKUMAR, J.]
the industrial company (respondent herein) that approached the BIFR A
under the provisions of SICA and got it declared as ‘sick company’ by
filing Case No. 13 of 2010; that it is thereafter that the appellant filed
Miscellaneous Application No. 432/2013 thereon praying, inter-alia, to
permit it under Section 22 of SICA to approach a Civil Court of appropriate
jurisdiction for recovery of the above-mentioned dues along with interest;
B
that the said application was disposed of only on 09.09.2015, as per
Annexure-A40 proceedings, that too, only with a direction to the
respondent company to incorporate the dues of the applicant in the
DRS and that as per Annexure-A40, Case No.13 of 2010 and M.A.
No. 292/2014 filed thereon, were then, posted for hearing. In short,
Case No. 13 of 2010 was pending before the BIFR when SICA was C
repealed w.e.f. 01.12.2016 and Sections 8 and 9, IBC took its effect
from 01.12.12016. Thus, obviously, proceedings under SICA were then
pending before the BIFR when the default from the part of the
respondent allegedly occurred and by virtue of Section 22 (1), SICA
and the decisions referred above, the appellant could not have, then, D
resorted to any legal proceedings for enforcing any right which may
result in recovery from the properties of the respondent company. For
the same reasons, the contention of the respondent that pending the
proceedings before the BIFR the appellant could have resorted to
arbitration proceedings also has to fail.
E
15. Now, we will have to consider the purported intent of Section
22 (5), SICA. The intention appears to be to protect the interest of such
a party who was prevented from lawfully enforcing the right to seek for
recovery of dues during the operative period of the bar under Section 22
(1), SICA, if it is otherwise available even after the conclusion of
proceedings before the BIFR, to the extent specifically mentioned therein. F
According to us, any other understanding of the provisions under Section
22 (5) would be wholly pointless and purposeless. When the appellant
being a party to BIFR in the sense, on intervention obtained an order to
the respondent company to incorporate its dues in the Draft Rehabilitation
Scheme (DRS) in an application seeking permission to effect recovery G
of the dues and such a stage had not reached till 01.12.2016, whether
there would be any justification to hold that on the repeal of SICA it
could not claim the benefit flowing from the provisions under Section 22
(5) of SICA, subject to the provisions under the relevant laws governing
the appropriate forum chosen?
H
202 SUPREME COURT REPORTS [2023] 4 S.C.R.
A 16. In the contextual situation, it is apropos to refer to Section 252
of IBC which reads thus: -
“252. The Sick Industrial Companies (Special Provisions)
Repeal Act, 2003 shall be amended in the manner specified
in the Eighth Schedule.”
B 16.1 The Eighth Schedule would reveal the nature and manner of
amendment specified thereunder as substitution to sub-clause (b) of
Section 4, of SICA Repeal Act, 2003 w.e.f. 01.12.2016, as hereunder:
“(b) On such date as may be notified by the Central
Government in this behalf, any appeal preferred to the
C Appellate Authority or any reference made or inquiry pending
to or before the Board or any proceeding of whatever nature
pending before the Appellate Authority or the Board under
the Sick Industrial Companies (Special Provisions) Act, 1985
(1 of 1986) shall stand abated: Provided that a company in
D respect of which such appeal or reference or inquiry stands
abated under this clause may make reference to the National
Company Law Tribunal under the Insolvency and Bankruptcy
Code, 2016 within one hundred and eighty days from the
commencement of the Insolvency and Bankruptcy Code, 2016
in accordance with the provisions of the Insolvency and
E Bankruptcy Code, 2016:
Provided further that no fees shall be payable for making
such reference under Insolvency and Bankruptcy Code, 2016
by a company whose appeal or reference or inquiry stands
abated under this clause.”.
F
(Emphasis added)
17. A perusal of the substituted sub-clause (b), as extracted above
would reveal that reference made or inquiry pending or any proceeding
of whatever nature, before the Board under SICA would stand abated
G upon its notification by the Central Government. The first proviso to
sub-clause (b) only makes reference to the time limit applicable to the
company in respect of which the appeal or reference or enquiry or any
such proceeding thus stood abated under the said sub-clause. Going by
the said proviso, such a company may make reference to NCLT under
IBC within 180 days from the commencement of IBC and in accordance
H
SABARMATI GAS LIMITED v. SHAH ALLOYS LIMITED 203
[C. T. RAVIKUMAR, J.]
with the provisions thereof. Subsequently, the stated amendment was A
notified by the Central Government under S.O. 3569 (E) dated 25.11.2016.
It is thus clear that on account of repeal of SICA under Repeal Act (1 of
2003) w.e.f. 01.12.2016, any pending proceeding or enquiry under SICA,
initiated by an industrial company would get abated and the prescription
of such period of 180 days became applicable only to such a company. A
B
scanning of the stated sub-clause (b) and the provisos would not reveal
or indicate prescription of any such specific time limit as regards the
opposite parties in the abated reference, inquiry or proceeding for
proceeding with their available remedy under IBC. In the said
circumstances, if such an opposite party falls within the expression
‘operational creditor’, under IBC, it could only be taken that it should be C
governed by the provisions under the IBC in regard to the period of
limitation for approaching the Adjudicating Authority. In this context, it is
also relevant to note that as relates the company whose reference or
inquiry or any proceeding got abated, as mentioned, it need not pay any
fee for making reference under IBC, in terms of the second proviso to D
the substituted sub-clause (b) of Section 4 of the SICA Repeal Act.
Needless to say, that this exemption is not available to other parties to
the abated proceedings, or reference or inquiry concerned.
18. Section 6, IBC provides that where any corporate debtor
commits a default, a financial creditor, an operational creditor or the
E
corporate debtor itself may initiate CIRP in respect of such corporate
debtor in the manner provided under Chapter II of IBC. Section 8, which
falls under Chapter II, deals with insolvency resolution by operational
creditor. It provides that an operational creditor may, on the occurrence
of default, deliver a demand notice of unpaid of operational debt or copy
of an invoice demanding payment of the amount involved in the default F
to the corporate debtor in such form and manner as may be prescribed.
It is apposite to note that a seemingly printing error had occurred in
Section 8 (1), IBC inasmuch as instead of ‘a demand notice of unpaid
operational debt’ it is printed as ‘a demand notice of unpaid operational
debtor.’ Evidently, this must have occurred as in the Gazette Notification G
also the word ‘debtor’ is following the words ‘unpaid operational’. The
word ‘debtor’ used therein has to be split into ‘debt’ and ‘or’ so as to
serve the purpose and to give the intended meaning to Section 8 (1) and
this view would get support from sub-section (2) of Section 8 itself. Sub-
section 2 of Section 8, IBC in so far as it is relevant, reads thus: -
H
204 SUPREME COURT REPORTS [2023] 4 S.C.R.
A “8. (1) ….
(2) The corporate debtor shall, within a period of ten days of
the receipt of the demand notice or copy of the invoice
mentioned in sub-section (1) bring to the notice of the
operational creditor—
B (a) existence of a dispute, if any, or record of the pendency
of the suit or arbitration proceedings filed before the receipt
of such notice or invoice in relation to such dispute;
(b) the payment of unpaid operational debt—
(Underline supplied)
C
19. So also, the said position is evident from Rule 5 of the Insolvency
and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (for
short ‘the Rules’). Going by the instruction in Form 3, in which a Demand
Notice is to be delivered to the corporate debtor under ‘the Rules’, the
said from has to be served on the corporate debtor, ten days in advance
D of filing an application under Section 9 of the Code. This instruction can
only be construed that it shall be served on the corporate debtor not less
than ten days in advance of filing an application under Section 9 of the
Code for the simple reason that the period of limitation for filing an
application under Section 9, IBC is governed by Section 238 A, IBC and
therefore, it could not be construed that Section 9 application should
E
invariably be filed on the eleventh day of service of advance demand
notice in Form 3. Section 238 A, IBC, dealing with period of limitation,
has come into force w.e.f. 06.06.2018 and it reads thus: -
“238A. Limitation. – The provisions of the Limitation Act, 1963
(36 of 1963) shall, as far as may be, apply to the proceedings
F or appeals before the Adjudicating Authority, the National
Company Law Appellate Tribunal, the Debt Recovery Tribunal
or the Debt Recovery Appellate Tribunal, as the case may be.”
20. Obviously, Section 238A, IBC makes the provisions of the
Limitation Act, 1963 applicable to computation of the period of limitation
G in regard to proceedings before the Adjudicating Authority and the other
forums. This position is made explicitly clear in the decision of this Court
in B.K. Educational Services Private Limited v. Parag Gupta and
Associates4 at paragraphs 43 and 48 and they read thus: -
4
H (2019) 11 SCC 633
SABARMATI GAS LIMITED v. SHAH ALLOYS LIMITED 205
[C. T. RAVIKUMAR, J.]
“43. It will be seen from a reading of Section 8 (2) (a) that the A
corporate debtor shall, within a period of 10 days of the
receipt of the demand notice, bring to the notice of the
operational creditor the existence of a “dispute”. We have
seen that “dispute” as defined in Section 5 (6) includes a suit
or arbitration proceeding relating to certain matters. Again,
B
under Section 8 (2) (a), the corporate debtor may, in the
alternative, disclose the pendency of a suit or arbitration
proceedings filed before the receipt of the demand notice. It
is clear therefore, that at least in the case of an operational
creditor, “default” must be non-payment of amounts that have
become due and payable in law. The “dispute” or pendency C
of a suit or arbitration proceedings would necessarily bring
in the Limitation Act, for if a suit or arbitration proceeding is
time-barred, it would be liable to be dismissed. This again is
an important pointer to the fact that when the expression
“due” and “due and payable” occur in Sections 3(11) and 3 D
(12) of the Code, they refer to a “default” which is non-
payment of a debt that is due in law i.e. that such debt is not
barred by the law of limitation. It is well settled that where the
same word occurs in a similar context, the draftsman of the
statute intends that the word bears the same meaning
throughout the statute (see Bhogilal Chunilal Pandya v. State E
of Bombay 1959 Supp (1) SCR 310, AIR 1959 SC 356, 1959
Cri LJ 389, Supp SCR at pp. 313- 14). It is thus clear that the
expression “default” bears the same meaning in Sections 7
and 8 of the Code, making it clear that the corporate insolvency
resolution process against a corporate debtor can only be F
initiated either by a financial or operational creditor in
relation to debts which have not become time-barred.
48. It is thus clear that since the Limitation Act is applicable
to applications filed under Sections 7 and 9 of the Code from
the inception of the Code, Article 137 of the Limitation Act G
gets attracted. “The right to sue”, therefore, accrues when a
default occurs. If the default has occurred over three years
prior to the date of filing of the application, the application
would be barred under Article 137 of the Limitation Act, save
and except in those cases where, in the facts of the case,
H
206 SUPREME COURT REPORTS [2023] 4 S.C.R.
A Section 5 of the Limitation Act may be applied to condone the
delay in filing such application.”
(emphasis supplied)
21. The decision in B.K. Educational Services Private Limited
(supra) would thus reveal that Articles 137 and 5 of the Limitation Act,
B 1963 are applicable to applications filed under Sections 7 and 9 of IBC.
It be so, the position is that the period of limitation is three years from
the right to apply accrues but the delay is condonable on sufficient grounds.
It is to be noted that the third column in Article 137 of the Limitation Act
posits that time runs when the ‘right to apply accrues’. In the decision in
C Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries
Private Limited and Anr. 5 this Court considered the question as to
when ‘right to apply would accrue?’ Paragraph 32 of the said decision,
in so far as it is relevant for the purpose of this case reads thus:-
“32. When Section 238-A of the Code is read with the above
D noted consistent decisions of this Court in Innoventive
Industries [Innoventive Industries Ltd. v. ICICI Bank, (2018)
1 SCC 407], B.K. Educational Services [B.K. Educational
Services (P) Ltd. v. Paras Gupta & Associates, (2019) 11 SCC
633], Swiss Ribbons [Swiss Ribbons (P) Ltd. v. Union of India,
(2019) 4 SCC 17], K. Sashidhar [K. Sashidhar v. Indian
E Overseas Bank, (2019) 12 SCC 150], Jignesh Shah [Jignesh
Shah v. Union of India, (2019) 10 SCC 750], Vashdeo R.
Bhojwani [Vashdeo R. Bhojwani v. Abhyudaya Coop. Bank
Ltd., (2019) 9 SCC 158], Gaurav Hargovindbhai Dave [Gaurav
Hargovindbhai Dave v. Asset Reconstruction Co. (India) Ltd.,
F (2019) 10 SCC 572] and Sagar Sharma [Sagar Sharma
v. Phoenix ARC (P) Ltd., (2019) 10 SCC 353] respectively, the
following basics undoubtedly come to the fore:
(a) that the Code is a beneficial legislation intended to put
the corporate debtor back on its feet and is not a mere money
G 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 debtor;
5
H (2020) 15 SCC 1
SABARMATI GAS LIMITED v. SHAH ALLOYS LIMITED 207
[C. T. RAVIKUMAR, J.]
(c) that intention of the Code is not to give a new lease of A
life to debts which are time-barred;
(d) that the period of limitation for an application seeking
initiation 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; B
(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 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 C
non-payment by the corporate debtor when a debt has become
due and payable; and
(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, D
the delay in filing may be condoned; and
(h) an application under Section 7 of the Code is not for
enforcement of mortgage liability and Article 62 of the
Limitation Act does not apply to this application.
E
22. The following relevant recitals from paragraphs 34, 34.1, 38
and 38.1 are worthy to be noted in the above context and they read
thus:-
“34……….. As noticed, in B.K. Educational Services [B.K.
Educational Services (P) Ltd. v. Paras Gupta & Associates,
F
(2019) 11 SCC 633, it has clearly been held that the limitation
period for application under Section 7 of the Code is three
years as provided by Article 137 of the Limitation Act, which
commences from the date of default and is extendable only
by application of Section 5 of the Limitation Act, if any case
for condonation of delay is made out. The findings in para G
12 in Jignesh Shah [Jignesh Shah v. Union of India, (2019)
10 SCC 750] makes it clear that the Court indeed applied the
principles so stated in B.K. Educational Services [B.K.
Educational Services (P) Ltd. v. Paras Gupta & Associates,
(2019) 11 SCC 633], and held that the winding-up petition
H
208 SUPREME COURT REPORTS [2023] 4 S.C.R.
A filed beyond three years from the date of default was barred
by time.
34.1. Even in the later decisions, this Court has consistently
applied the declaration of law in B.K. Educational Services
[B.K. Educational Services (P) Ltd. v. Paras Gupta &
B Associates, (2019) 11 SCC 633]. As noticed, in Vashdeo R.
Bhojwani [Vashdeo R. Bhojwani v. Abhyudaya Coop. Bank
Ltd., (2019) 9 SCC 158], this Court rejected the contention
suggesting continuing cause of action for the purpose of
application under Section 7 of the Code while holding that
the limitation started ticking from the date of issuance of
C recovery certificate dated 24-12-2001. Again, in Gaurav
Hargovindbhai Dave [Gaurav Hargovindbhai Dave v. Asset
Reconstruction Co. (India) Ltd., (2019) 10 SCC 572], where
the date of default was stated in the application under Section
7 of the Code to be the date of NPA i.e. 21-7-2011, this Court
D held that the limitation began to run from the date of NPA and
hence, the application filed under Section 7 of the Code on
3-10-2017 was barred by limitation.
38. The question as to whether date of enforcement of the
Code (i.e. 1-12-2016) provides the starting point of limitation
E for an application under Section 7 of the Code and hence,
the application in question, made in the year 2018, is within
limitation, is not even worth devoting much time. A bare look
at para 21 of the impugned order [Babulal Vardhaji Gurjar
v. Veer Gurjar Aluminium Industries (P) Ltd., 2019 SCC
OnLine NCLAT 295] leaves nothing to guess that such
F observations by the Appellate Tribunal had only been
assumptive in nature without any foundation and without any
basis. There is nothing in the Code to even remotely indicate
if the period of limitation for the purpose of an application
under Section 7 is to commence from the date of commencement
G of the Code itself. Similarly, nothing provided in the Limitation
Act could be taken as the basis to support the proposition so
stated by the Appellate Tribunal. In fact, such observations
had been in the teeth of law declared by this Court in B.K.
Educational Services [B.K. Educational Services (P) Ltd. v.
Paras Gupta & Associates, (2019) 11 SCC 633].
H
SABARMATI GAS LIMITED v. SHAH ALLOYS LIMITED 209
[C. T. RAVIKUMAR, J.]
38.1. It appears that at the given point of time, NCLAT had A
been readily adopting such a proposition in other cases too,
so as to treat similar applications within limitation. This
approach of NCLAT was specifically disapproved by this Court
in Sagar Sharma [Sagar Sharma v. Phoenix ARC (P) Ltd.,
(2019) 10 SCC 353] where, after observing that in B.K.
B
Educational Services [B.K. Educational Services (P) Ltd. v.
Paras Gupta & Associates, (2019) 11 SCC 633] it had already
been made clear that the date of the Code’s coming into force
on 1-12-2016 was wholly irrelevant to the triggering of any
limitation period for the purposes of the Code, this Court
said : (Sagar Sharma case [Sagar Sharma v. Phoenix ARC C
(P) Ltd., (2019) 10 SCC 353], SCC p. 354, para 3)
“3. Article 141 of the Constitution of India mandates that our
judgments are followed in letter and spirit. The date of coming
into force of the IB Code does not and cannot form a trigger
point of limitation for applications filed under the Code. D
Equally, since “applications” are petitions which are filed
under the Code, it is Article 137 of the Limitation Act which
will apply to such applications.”
23. The above-mentioned positions settled with respect to Section
7, IBC will proprio vigore apply to Section 9, IBC. In short, as relates E
an application under Section 9, IBC the date of coming into force of
IBC, viz, 01.12.2016 would not form the trigger point of limitation and
the period of limitation for an application for initiating of CIRP under
Section 9, IBC would be three years from the date when the right to
apply accrues as provided by Article 137 of the Limitation Act and further
that the right to apply under the IBC would accrue on the date when F
default occurs and it is extendable only by application of Section 5 of the
Limitation Act. In view of the nature of the provision under SICA and
the nature of the orders issuable by the BIFR and the positions qua an
application for initiation of CIRP under Section 9 of IBC, referred above,
we think it absolutely unnecessary to delve into the question of applicability G
or otherwise of Section 14 of the Limitation Act in regard to proceedings
under Section 9, IBC as the same provides only for exclusion of time of
proceedings bona fide in Court without jurisdiction.
24. When the limitation period for initiating CIRP under Section 9,
IBC is to be reckoned from the date of default, as opposed to the date of H
210 SUPREME COURT REPORTS [2023] 4 S.C.R.
A commencement of IBC and the period prescribed therefor, is three years
as provided by Section 137 of the Limitation Act, 1963 and the same
would commence from the date of default and is extendable only by
application of Section 5 of the Limitation Act, 1963 it is incumbent on the
Adjudicating Authority to consider the claim for condonation of the delay
when once the proceeding concerned is found filed beyond the period of
B
limitation.
25. As relates Section 5 of the Limitation Act showing ‘sufficient
cause’ is the only criterion for condoning delay. ‘Sufficient Cause’ is the
cause for which a party could not be blamed. We have already taken
note of the legal bar for initiation of proceedings against an industrial
C company by virtue of Section 22 (1), SICA and obviously, when a party
was thus legally disabled from resorting to legal proceeding for recovering
the outstanding dues without the permission of BIFR and even on
application permission therefor was not given the period of suspension
of legal proceedings is excludable in computing the period of limitation
D for the enforcement of such right in terms of Section 22(5), SICA. In
the absence of provisions for exclusion of such period in respect of an
application under Section 9, IBC, despite the combined reading of Section
238A, IBC and the provisions under the Limitation Act what is legally
available to such a party is to assign the same as a sufficient cause for
condoning the delay under Section 5 of the Limitation Act. In such
E eventuality, in accordance with the factual position obtained in any
particular case viz., the period of delay and the period covered by
suspension of right under Section 22 (1), SICA etc., the question of
condonation of delay has to be considered lest it will result in injustice as
the party was statutorily prevented from initiating action against the
F industrial company concerned. The first question formulated hereinbefore
is accordingly answered.
26. In the case on hand, indubitably, the question whether the
delay occurred in the matter of filing of application under Section 9, IBC
is condonable or not, was not considered. A bare perusal of the impugned
G order would reveal that after taking into account the date of default and
the date of filing of the application under Section 9, IBC the NCLAT
held it as time barred. When once it is so found we would have remanded
the matter for consideration of the question of limitation afresh, but for
the fact that the application under Section 9, IBC was dismissed assigning
reason of existence of ‘pre-existing dispute’ as well.
H
SABARMATI GAS LIMITED v. SHAH ALLOYS LIMITED 211
[C. T. RAVIKUMAR, J.]
27. The appellant and the respondent have cited various decisions A
in support of their rival contentions on the sustainability or otherwise of
the dismissal of the stated application on the ground of existence of
‘pre-existing dispute(s)’ between the parties. Nonetheless, we are of
the considered view that in that regard, only the decisions to be referred
infra, require consideration. Paradoxically, both sides relied on the decision
B
of this Court in Macquarie Bank Limited v. Shilpi Cable Technologies
Limited6.
28. Macquarie Bank Limited’s case (supra) is relied on by the
appellant to drive home the point that production of the certificate/
statement from the financial institution maintaining the accounts of the
operational creditor concerned, under Section 9 (3)(c), IBC, is not a C
condition precedent to trigger CIRP and hence, its insistence will be
violative of the law laid down thereunder. In Macquarie Bank Limited
(supra), in paragraph 16, this Court held: -
“16. When we come to clause (c) of Section 9(3), it is equally
clear that a copy of the certificate from the financial institution D
maintaining accounts of the operational creditor confirming
that there is no payment of an unpaid operational debt by the
corporate debtor is certainly not a condition precedent to
triggering the insolvency process under the Code. The
expression “confirming” makes it clear that this is only a piece E
of evidence, albeit a very important piece of evidence, which
only “confirms” that there is no payment of an unpaid
operational debt. This becomes clearer when we go to clause
(d) of Section 9(3) which requires such other information as
may be specified has also to be furnished along with the
application.” F
29. This position is thus fairly settled, as above. On the other
hand, the respondent relied on the said decision to buttress its contention
that existence of ‘pre-existing dispute’ should entail dismissal of
application under Section 9, IBC.
30. In Macquarie Bank Limited (supra), this Court held, at G
paragraphs, 13 and 14 thus: -
“13.The first thing to be noticed on a conjoint reading of
Sections 8 and 9 of the Code, as explained in Mobilox
6
(2018) 2 SCC 674 H
212 SUPREME COURT REPORTS [2023] 4 S.C.R.
A Innovations (P) Ltd. v. Kirusa Software (P) Ltd. (2018) 1 SCC
353, decided on 21-9-2017 at paras 33 to 36, is that Section
9(1) contains the conditions precedent for triggering the Code
insofar as an operational creditor is concerned. The requisite
elements necessary to trigger the Code are:
B (i) occurrence of a default;
(ii) delivery of a demand notice of an unpaid operational
debt or invoice demanding payment of the amount involved;
and
(iii) the fact that the operational creditor has not received
C payment from the corporate debtor within a period of 10 days
of receipt of the demand notice or copy of invoice demanding
payment, or received a reply from the corporate debtor which
does not indicate the existence of a pre-existing dispute or
repayment of the unpaid operational debt.
D 14.It is only when these conditions are met that an application
may then be filed under Section 9(2) of the Code in the
prescribed manner, accompanied with such fee as has been
prescribed ...”
(emphasis supplied)
E 31. In the decision in Innoventive Industries Ltd. v. ICICI Bank
and Anr.7, at paragraph 29, this Court held thus: -
“29. The scheme of Section 7 stands in contrast with the
scheme under Section 8 where an operational creditor is, on
the occurrence of a default, to first deliver a demand notice
F of the unpaid debt to the operational debtor in the manner
provided in Section 8(1) of the Code. Under Section 8(2), the
corporate debtor can, within a period of 10 days of receipt
of the demand notice or copy of the invoice mentioned in
sub-section (1), bring to the notice of the operational creditor
G the existence of a dispute or the record of the pendency of a
suit or arbitration proceedings, which is pre-existing — i.e.
before such notice or invoice was received by the corporate
debtor. The moment there is existence of such a dispute, the
operational creditor gets out of the clutches of the Code.”
H 7
(2018) 1 SCC 407
SABARMATI GAS LIMITED v. SHAH ALLOYS LIMITED 213
[C. T. RAVIKUMAR, J.]
32. A scanning of the decisions referred supra, would reveal that A
existence of a ‘pre-existing dispute’ should entail dismissal of an
application filed under Section 9 IBC at the threshold. Therefore, the
question is whether the respondent had raised a dispute describable as a
‘pre-existing dispute’ so as to entail dismissal of application of the appellant
under Section 9, IBC. In Mobilox Innovations (P) Ltd. (supra),
B
particularly at paragraphs 33 and 51, this Court held thus: -
“33.The scheme under Sections 8 and 9 of the Code, appears
to be that an operational creditor, as defined, may, on the
occurrence of a default (i.e. on non-payment of a debt, any
part whereof has become due and payable and has not been
repaid), deliver a demand notice of such unpaid operational C
debt or deliver the copy of an invoice demanding payment of
such amount to the corporate debtor in the form set out in
Rule 5 of the Insolvency and Bankruptcy (Application to
Adjudicating Authority) Rules, 2016 read with Form 3 or 4,
as the case may be [Section 8 (1)]. Within a period of 10 days D
of the receipt of such demand notice or copy of invoice, the
corporate debtor must bring to the notice of the operational
creditor the existence of a dispute and/or the record of the
pendency of a suit or arbitration proceeding filed before the
receipt of such notice or invoice in relation to such dispute
[Section 8(2)(a)]. What is important is that the existence of E
the dispute and/or the suit or arbitration proceeding must be
pre-existing i.e. it must exist before the receipt of the demand
notice or invoice, as the case may be. […] It is only if, after
the expiry of the period of the said 10 days, the operational
creditor does not either receive payment from the corporate F
debtor or notice of dispute, that the operational creditor may
trigger the insolvency process by filing an application before
the adjudicating authority under Sections 9(1) and 9(2). [. ..
] It may also reject the application if the notice of dispute has
been received by the operational creditor or there is a record
of dispute in the information utility [Section 9(5)(ii)(d)}. G
Section 9(5)(ii)(d) refers to the notice of an existing dispute
that has so been received, as it must be read with Section
8(2)(a). Also, if any disciplinary proceeding is pending against
any proposed resolution professional, the application may
be rejected [Section 9(5)(ii)(e)]. H
214 SUPREME COURT REPORTS [2023] 4 S.C.R.
A 51. It is clear, therefore, that once the operational creditor
has filed an application, which is otherwise complete, the
adjudicating Authority must reject the application under
Section 9(5)(2)(d) if notice of dispute has been received by
the operational creditor or there is a record of dispute in the
B information utility. It is clear that such notice must bring to
the notice of the operational creditor the “existence” of a
dispute or the fact that a suit or arbitration proceeding
relating to a dispute is pending between the parties. Therefore,
all that the adjudicating Authority is to see at this stage is
whether there is a plausible contention which requires further
C investigation and that the “dispute” is not a patently feeble
legal argument or an assertion of fact unsupported by
evidence. It is important to separate the grain from the chaff
and to reject a spurious defence which is mere bluster.
However, in doing so, the Court does not need to be satisfied
D that the defence is likely to succeed. The Court does not at
this stage examine the merits of the dispute except to the extent
indicated above. So long as a dispute truly exists in fact and
is not spurious, hypothetical or illusory, the adjudicating
Authority has to reject the application.”
E (emphasis supplied)
33. In the light of the positions thus settled by this Court in
Macquarie Bank Limited (supra) and Mobilox Innovations (P) Ltd.
(supra), we will examine the question whether there was a ‘pre-existing
dispute’ between the parties, warranting dismissal of the application for
F initiation of CIRP filed by the appellant.
34. In this context, it is relevant to note that the Annexure A-41
demand notice under Section 8, IBC was issued by the appellant on
01.04.2017 and the respondent replied the same as per letter Annexure
A-42 letter dated 10.04.2017 viz., within 10 days from the date of receipt
G of Annexure A-41. Evidently, the respondent, in Annexure A-42 reply
raised the contentions that there was shortfall in gas supply and that it
had suffered huge loss due to the disconnection of gas supply. True that,
in terms of the decision in Mobilox Innovations (P) Ltd. (supra) what
is to be looked into is the existence or otherwise of a dispute and/or the
suit or arbitration proceedings prior to the receipt of demand notice or
H
SABARMATI GAS LIMITED v. SHAH ALLOYS LIMITED 215
[C. T. RAVIKUMAR, J.]
invoice, as the case may be. In the case on hand, as noticed earlier, the A
appellant had issued a demand notice under Section 8, IBC read with
the Rule 5 of 2016 Rules on 01.04.2017. Obviously, the NCLT and NCLAT
referred to a letter dated 04.01.2013 (Annexure A-36 herein) to hold
that existence of a pre-existing dispute between the parties revealed
from the same. The said letter dated 04.01.2013 issued by way of a B
reply by the respondent to the letter from the appellant dated 03.01.2013,
reads thus:-
“Date : 04.01.2013
To,
The Director, C
Sabarmati Gas Ltd.,
Gandhinagar.
Respected Sir,
Ref : Your letter dated 03.01.2013
D
We are registered with BlFR vide Case No. 13/2010 pursuant
to Section 22 of SICA no coercive recovery can be made.
Kindly note that abrupt disconnection of Gas Supply to our
Unit is causing heavy losses on account of production. The
loss is further exaggerating on account of non-supply of
E
material to various parties which includes Railway Board and
other Big units.
Kindly note that you are responsible for the Direct Loss of
Production ranging from Rs. 30- Rs. 50 Lakhs per day and
also Consequential Losses that may be incurred by us F
including Penalties for Non-compliance of contract (or
supplies for which you will solely be held responsible.
In view of the above subject we agree for payment of bills
and request you to wait (or the old bills payment till
restructuring is agreed by Honorable BIFR. G
Hoping for your best co-operation
Thanking you,
For Shah Alloys Limited
Authorized Signatory” H
216 SUPREME COURT REPORTS [2023] 4 S.C.R.
A 35. The learned Senior Counsel for the appellant would contend
that last para of the said letter dated 04.01.2013 would reveal the fact
that the respondent had agreed to effect the payments or bills and
requested only to wait for the old bills payments till restructuring is agreed
by BIFR and in other words, non-existence of a dispute. That apart, the
appellant heavily relied on paragraph 2.7 and 2.10 (iv) of Annexure 40
B
which is the proceeding of BIFR in Case No.13 of 2010 dated 09.09.2015,
to canvass the position that the contention of the respondent regarding
existence of a pre-existing dispute with respect to the dues payable to it,
is bereft of any basis. The aforesaid relevant paragraphs in Annexure
A-40 are as under: -
C “2.7 The Bench then took MA No. 432/2013. The ld advocate
representing the applicant (Sabarmati Gas Ltd.) sought time
to appear prepared in the next date of hearing, since they
have been engaged recently in this case. The ld advocate
representing the company submitted that the applicant is an
D unsecured creditor and he accepted the dues of the applicant.
He assured that their reconciled dues will be taken care of in
the DRS, as unsecured creditor and they will be paid as per
the terms of DRS, as and when it would be approved by the
Board.
E 2.10 Having considered the submissions made during the
hearing and material on record the Bench issued following
directions:
…
(iv) MA 432 filed by Sabarmati Gas Ltd. is disposed off with
F the direction to the company to incorporate the dues of the
applicant in the DRS.”
36. True that paragraph 2.7 of Annexure 40 carries the recording
of the submissions made on behalf of the respondent before the BIFR
by the learned advocate, as above. Citing all such aspects, the learned
G Senior Counsel for the appellant contended that the contention of the
respondent regarding ‘pre-existing dispute’ is only a patently feeble legal
argument/assertion of fact unsupported by evidence and therefore, it
was to be rejected by the Tribunals. It is further contended by the applicant
that directions at paragraph 2.10 (iv) also is relevant in this context as it
would reveal that the Misc. Application No.432 of 2013 filed by the
H
SABARMATI GAS LIMITED v. SHAH ALLOYS LIMITED 217
[C. T. RAVIKUMAR, J.]
Appellant herein was disposed of with the direction to the respondent A
company to incorporate the position of the appellants/applicant therein
in the DRS.
37. Per contra, the learned counsel for the respondent would
submit that a scanning of paragraph 2.7 itself would reveal that what
was assured by the counsel appearing on behalf of the respondent before B
the BIFR was not full payment of the amountas claimed by the appellant
thereunder and what was assured was that the reconciled dues towards
the appellant would be taken care of in the DRS, as unsecured creditor
and that it would be paid as per the terms of DRS, as and when it is
approved by the Board.
C
38. In this context the meaning of the word “reconciliation” is to
be looked into. Going by Black’s Law Dictionary, 10 th Edition, the apt
meaning suitable to the situation in relation to accounting, reads thus: “an
adjustment of amounts so that they agree, especially by allowing for
outstanding items”. It is submitted by the learned counsel for the
respondent that such a reconciliation had not taken place and also that D
indisputably, DRS was not formulated and approved. The aforesaid facts
revealed from Annexure 40 together with the stand taken by the
respondent in the letter dated 04.01.2013 (Annexure 36) would reveal
the existence of a pre-existing dispute between the parties. In the
contextual situation it is only apposite to be remindful of the observation E
in Mobilox Innovations (P) Ltd. (supra) that in doing the act of
separating the grain from chaff the Court need not to be satisfied that
the defence is likely to succeed. It is enough that a dispute exists between
the parties and in other words, what is to be seen is whether there was
a plausible contention requiring investigation for the purpose of
adjudication. Taking note of the nature of the dispute of the respondent F
as referred hereinbefore in respect of the claim made by the appellant,
we do not find any reason to disagree with the concurrent findings of the
Tribunals that there existed a ‘pre-existing dispute’ between the parties
before the receipt of demand notice under Section 8, IBC. In other words,
the dismissal of the application under Section 9, IBC on the ground of G
‘pre-existing dispute’ cannot be held to be patently illegal or perverse.
We also do not find any reason, in the facts and circumstances, to hold
that the case set up by the respondent was a patently feeble legal
argument. At any rate, we are not inclined to brush aside the case of the
respondent as spurious. We may hasten to add here that we shall not be
H
218 SUPREME COURT REPORTS [2023] 4 S.C.R.
A understood to have held that the dispute set by the respondent regarding
the dues is ultimately to be upheld. Certainly, when the expression ‘pre-
existing dispute’ is used it will only indicate the existence of a dispute
prior to the receipt of a demand notice under Section 8, IBC, and the
correctness or its truthfulness is a matter of evidence. In short, the
respondent has succeeded in raising a dispute describable as ‘pre-existing
B
dispute’. In that view of the matter once we find that the Tribunals have
rightfully held that there existed a ‘pre-existing dispute’ between the
parties there cannot be an order of remand of the matter to the Tribunal
for reconsideration of Section 9 application under IBC.
39. In the contextual situation, it is also relevant to refer to the
C fact, rightly taken note of by the NCLT, that the respondent herein had
filed a Commercial Suit No.92 of 2017 on 28.04.2017 before the
Commercial Court in Ahmedabad, claiming damages for the loss suffered
by it due to discontinuation of gas supply. True that on 12.07.2018, the
said Commercial Civil Suit was dismissed by the Commercial Court at
D Ahmedabad on the ground of being barred by limitation. Annexure-B
would reveal that against the judgment of dismissal in the said suit, the
respondent herein had filed First Appeal No. 3841 of 2018 before the
High Court of Gujarat at Ahmedabad. It was disposed of on 11.08.2021,
taking into account the joint submission that parties be permitted to settle
dispute through arbitration process. In this context it is also to be noted
E that the notice of arbitration dated 29.11.2019 has been issued by the
appellant itself. Recording the submission, the appeal was permitted to
be withdrawn leaving the parties to proceed with arbitral process. This
fact is not disputed and in fact, it is indisputable in view of Annexure-B,
judgment dated 11.08.2021 of the High Court of Gujarat in Misc. First
F Appeal No.3841 of 2018. In Annexure-B, it is recorded thus:-
“Both the learned counsel have taken instructions and have
jointly submitted that let the parties get their dispute settled
through the arbitration process where learned former Judge
of this Court, Justice J.C. Upadhyaya (Retired) has already
G been appointed as the arbitrator on 29.11.2019 and since
then the matter is pending here.”
In this context, it is also relevant to note that Gas Supply Agreement
(GAS) which is an agreement entered into between the appellant and
the respondent dated 30.05.2008 in regard to the supply of natural gas,
H contains an arbitration clause viz., clause No.17. When the agreement
SABARMATI GAS LIMITED v. SHAH ALLOYS LIMITED 219
[C. T. RAVIKUMAR, J.]
entered into between the parties carries an arbitration clause and when A
the parties mutually consented and sought to proceed with arbitration
before the High Court and further, when the arbitration proceedings are
pending, we are of the view that the parties shall be left with the liberty
to raise all contentions before the arbitrator, except the legal questions
discussed and decided in this judgment.
B
40. Subject to the above, this Appeal stands dismissed. All the
pending application (s), stand disposed of.
Ankit Gyan Appeal dismissed.
(Assisted by : Jahanvi Taneja and Mahendra Yadav, LCRAs)
C
D
E
F
G
H
Search Indian case law
Ask in plain English, not just keywords. 25,000 AI words free, no card.
Try "insolvency"Sign in to search