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Between the Lines | Supreme Court: Limitation period for appeal under Insolvency and Bankruptcy Code, 2016 begins from the date of pronouncement of order and delay in uploading the order cannot exclude limitation November 22, 2021
Published in: Between The Lines
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The Supreme Court (“SC”) has in its judgment dated October 22, 2021 (“Judgement”), in the matter V Nagarajan v. SKS Ispat and Power Limited and Others [Civil Appeal No. 3327 of 2020], held that the period of limitation for filing of appeal against an order as per Section 61 of the Insolvency and Bankruptcy Code, 2016 (“IBC”) will start running as soon as the same is pronounced, and that it is not dependent on the date when the order is uploaded.
Facts
The instant case is an appeal before the SC under Section 62 (Appeal to Supreme Court) of the IBC against the judgement of the National Company Law Appellate Tribunal, Delhi (“NCLAT”) dated July 13, 2020, wherein the NCLAT had dismissed the appeal filed by the resolution professional (“Appellant”) against the National Company Law Tribunal, Chennai’s (“NCLT”) order dated December 31, 2019 (“NCLT Order”), as barred by limitation. The NCLT had dismissed the Appellant’s application in a liquidation proceeding, seeking interim relief against the invocation of a bank guarantee by SKS Power Generation Chhattisgarh Limited (“Respondent No. 10”), the subsidiary of SKS Ispat and Power Limited (“Respondent No. 1”), against Cethar Limited (“Corporate Debtor”), a corporate entity, engaged in engineering and project consultancy, undergoing liquidation. After an unsuccessful attempt at resolution, the Appellant was appointed as its liquidator on April 25, 2018. Respondent No. 1 and Respondent No. 10 are collectively called “Respondents”. The Appellant instituted proceedings under Section 43 (Preferential transactions) of the IBC and Section 45 (Avoidance of undervalued transactions) of the IBC to avoid preferential and undervalued transactions of the Corporate Debtor, in which no relief was sought against Respondent No. 10. The Appellant subsequently discovered that Respondent No. 1 and Respondent No. 10 had colluded with the promoters of the Corporate Debtor and defrauded the latter of over INR 400 crores by entering into a fraudulent settlement of INR 4.58 crores. The Appellant alleged that these transactions formed a part of the ongoing investigation by the Central Bureau of Investigations and the Enforcement Directorate. Respondent No. 10, allegedly at the behest of Respondent No. 1, sought to invoke certain bank guarantees issued by the Corporate Debtor for its failure to perform its engineering services. The Appellant filed an application to resist the invocation of the performance guarantee until the conclusion of the liquidation proceedings.
The NCLT refused to grant an injunction against the invocation of the bank guarantee until the conclusion of liquidation proceedings. A copy of the NCLT Order was uploaded on the NCLT website only on March 12, 2020, with the incorrect name of the judicial member who had passed the order. The corrected order was uploaded on March 20, 2020. Subsequently, the Appellant awaited the issue of a free copy and allegedly sought the free copy on March 23, 2020, under the provisions of Section 420(3) of the Companies Act, 2013 (“Companies Act”) read with Rule 50 (Registry to send certified copy) of the National Company Law Tribunal Rules, 2016 (“NCLT Rules”). According to the Appellant, the free copy has not been issued till date. Owing to the COVID-19 (“Pandemic”) induced lockdown, the appeal before the NCLAT was filed by the Appellant on June 8, 2020 with an application for exemption from filing a certified copy of the order as it had not been issued. The NCLAT in its order dated July 13, 2020, citing Section 61(2) of the IBC which mandates a limitation period for appeals to be thirty days, extendable by fifteen days, held that the appeal filed under Section 61(1) of the IBC was barred by limitation. It noted that the statutory time limit of thirty days had expired and an application for condonation of delay had not been filed. Further, it noted that contrary to Rule 22 (Presentation of appeal) of the National Company Law Appellate Tribunal Rules, 2016 (“NCLAT Rules”) which provides that every appeal must be accompanied with a certified copy of the impugned order, the same had not been annexed in this case. Aggrieved, the Appellant filed the instant appeal before the SC against the order of the NCLAT on the question of limitation.
Issue
Whether ‘Success Fees’ was chargeable by the Appellant.
Arguments
Contentions raised by the Appellant:
The Appellant submitted that after the NCLT Order, the constitution of the bench was changed shortly thereafter, hence the copy of the order was not uploaded until March 12, 2020, and the copy uploaded on March 12, 2020, was defective. The corrected copy was uploaded only on March 20, 2020. A request for the free copy was made at the NCLT registry on March 23, 2020, by the Appellant. The NCLAT was shut on account of the Pandemic from March 24, 2020 and a statement of purpose for commencement of virtual hearings was issued on May 30, 2020. The Appellant had immediately filed an appeal on June 8, 2020 with a downloaded copy, relying on the SC’s suo motu order dated March 23, 2020 (“Suo Motu Order”), extending limitation and the lack of receipt of a free certified copy. The Appellant argued that the Suo Motu Order had stopped the clock of limitation with effect from March 15, 2020 on account of the Pandemic. It was submitted that the appeal was de jure filed within three days of the order being received, within the thirty day limitation period prescribed under Section 61 (Appeals and Appellate Authority) of the IBC. It was argued that Rule 22 of the NCLAT Rules mandates a certified copy of the order for filing an appeal. However, Rule 14 (Power to exempt) of the NCLAT Rules permits a waiver from compliance with any of the rules, which has been usually granted in case of a downloaded online copy, in lieu of a certified copy of the order. The Appellant submitted that the appeal was not found defective under Rules 26 (Endorsement and scrutiny of petition or appeal or document) and 27 (Registration of proceedings admitted) of the NCLAT Rules as an application for waiver of filing a certified copy was duly filed and allowed.
The Appellant contended that Section 420(3) of the Companies Act read with Rule 50 of the NCLT Rules mandates a free copy of an order to be issued to every party, obviating the need for any party to obtain a certified copy of an order it seeks to impugn by way of an appeal. Therefore, it was submitted that the clock of limitation under Section 61 of the IBC would run from the date the free copy is issued to the party. Reliance was placed on the order of a three judge bench of the SC in Sagufa Ahmed v. Upper Assam Plywood Products Private Limited [2021 (2) SCC 317 ] (“Sagufa Ahmed”), albeit in the context of a case under the Companies Act, wherein it was held that the limitation period would run only from the date on which a copy of the order is made available to the aggrieved party. The Appellant submitted that Section 420(3) of the Companies Act and Rule 50 of the NCLT Rules would equally apply to proceedings under the IBC and the ratio in Sagufa Ahmed would squarely apply, by relying on the decision of the SC in BK Educational Services Private Limited v. Parag Gupta and Associates [2019 (11) SCC 633] (“BK Educational Services”).
It was pointed out that Section 12(2) of the Limitation Act, 1963 (“1963 Act”) was applicable from the date on which the copy of the order is made available and not from the date when such order is passed. The explanation to Section 12(2) of the 1963 Act, which states that “in computing under this section the time requisite for obtaining a copy of a decree or an order, any time taken by the court to prepare the decree or order before an application for a copy thereof is made shall not be excluded”, would not be attracted in cases where a free copy is mandated by the statute and online copies can be used for filing an appeal. Section 12(2) of the 1963 Act excludes the time taken from the date of order to it becoming available. Section 61 of the IBC prescribing a limitation period is subservient to the principle of lex non cogit ad impossibilia which states that the law cannot mandate a person to do an impossible act. Further, the Appellant submitted that an application for condonation of delay was not required when the Appellant had instituted the appeal in time and was statutorily entitled to a free certified copy.
Contentions raised by the Respondents:
It was submitted that since Section 61 of the IBC mandates an appeal against any order under the Companies Act to be filed within 30 days, the limitation to challenge the NCLT Order expired on February 15, 2020, even after accounting for the fifteen day extension, granted discretionarily under Section 61(2) of the IBC. Section 61(2) of the IBC does not state that limitation is to be applicable from the date of the order being ‘made available’, as against the provision enumerated under Section 421(3) of the Companies Act. It was argued that special acts override general enactments. It was contended that “made available” does not imply that parties can indefinitely wait until a free certified copy is provided to them. It was emphasized that a timely application for a certified copy has to be filed.
It was argued that as per the decision of the NCLAT in Pr. Director General of Income Tax v. Spartek Ceramics India Ltd, the period of thirty days for filing an appeal commences from the date of the ‘knowledge’ of the order. Section 12 (Exclusion of time in legal proceedings) of the 1963 Act prescribes that the limitation period can be ascertained only after an application for a certified copy of the judgement or order is filed within the limitation period, in order to not be declared as time barred. The time period of limitation can either be calculated from the date of the NCLT Order, or from the date of filing an application for a certified copy of the said order. In the absence of compliance with either, any appeal will be deemed as barred by limitation. It was further submitted that Rule 22(f) of the NCLAT Rules mandates an appeal to be accompanied with a certified copy of the order. The Appellant did not file for a certified copy of the NCLT order. Yet, the Appellant instituted its appeal before the NCLAT on the basis of an online copy without an application seeking exemption from filing a certified copy or an application seeking condonation of delay.
The Respondents further argued that the Appellant should have either waited to receive the free certified copy from the NCLT as per Section 420(3) of the Companies Act or applied for a certified copy within the limitation period, and could not selectively take shelter under one provision. Time is of the essence under the IBC, since it is a special enactment interpreted with strict limitation periods, due to which the Respondents expected diligence on the part of the Appellant. It was pointed out that in Mobilox Innovations Private Ltd v. Kirusa Software Private Ltd, the SC observed, in the context of appeals, that timelines are sacrosanct under the IBC as the best interests of all the stakeholders of the process lay in the time bound completion of resolution or liquidation of the company without being protracted.
Observations of the Supreme Court
The SC, noting the overriding effect of the IBC over the 1963 Act, observed that as per Section 9 (Courts to try all civil suits unless barred) of the Code of Civil Procedure, 1908, there is an inherent right to bring a suit of a civil nature, unless the suit is barred by a statute. The SC analyzed the comprehensive dispute resolution process, envisaged by the IBC, wherein the NCLT is the empowered adjudicating authority under Section 60 (Adjudicating Authority for corporate persons) of the IBC with the jurisdiction to entertain any proceeding in relation to insolvency resolution or liquidation proceedings under the IBC. An appeal lies against an order of the NCLT to the NCLAT, under Section 61(1) of the IBC, and an order of the NCLAT is subject to an appeal on a question of law to the SC under Section 62 of IBC. The jurisdiction of civil courts has been explicitly ousted by Section 63 (Civil court not to have jurisdiction) of the IBC. Section 61(2) of the IBC specifically provides for a limitation period of thirty days, extendable by a maximum of fifteen days on the demonstration of sufficient cause for the delay. The SC noted that in BK Educational Services, the SC had considered the interplay of the IBC, 1963 Act and the Companies Act constituting the NCLT and had held that the 1963 Act is applicable to proceedings under the IBC by virtue of Section 238A (Limitation) of the IBC.
In Sagufa Ahmed the SC held, in the context of a winding up petition under the Companies Act, that the aggrieved party could wait till it received its free copy under Section 420(3) of the Companies Act read with Rule 50 of the NCLT Rules, and was not obligated to file an application for a certified copy for the purposes of the computation of limitation. However, the SC in Sagufa Ahmed clarified that this would not apply once an application for a certified copy was made and the order was received. The SC observed in Sagufa Ahmed that irrespective of when the free certified copy is received, the limitation period would be computed from the date of receipt of the certified copy. In a field not covered by a special law which invests the NCLT with jurisdiction, the general principle for the computation of limitation for filing an appeal against an order of the NCLT is governed by the statutory mandate of Section 420(3) of the Companies Act read with Rule 50 of the NCLT Rules, which enables a party to compute limitation from the date of receipt of the statutorily mandated free certified copy, without having to file its own application. However, the statutory mandate of a free copy is not to enable litigants to take two bites at the apple where they could compute limitation from either when the certified copy is received on the litigant’s application or received as a free copy from the registry, whichever is later. The SC recognized that IBC is a complete code in itself and overrides any inconsistencies that may arise in the application of other laws. The notable difference between Section 421(3) of the Companies Act and Section 61(2) of the IBC is, in the absence of the words “from the date on which a copy of the order of the Tribunal is made available to the person aggrieved” in the latter. The absence of these words cannot be construed as a mere omission which can be supplemented with a right to a free copy under Section 420(3) of the Companies Act read with Rule 50 of the NCLT Rules for the purposes of reckoning limitation. This would ignore the context of the IBC’s provisions and the purpose of the legislation.
The SC observed that the power to condone delay is tightly circumscribed under the IBC and conditional upon showing sufficient cause, even within the period of delay which is capable of being condoned. The IBC sought to structure and streamline the entire process of insolvency, right from the initiation of insolvency to liquidation, as a one-stop mechanism. Section 12(3) of the IBC prescribes a strict timeline for the completion of the corporate insolvency resolution process of one hundred and eighty days which is extendable by ninety days. The proviso to Section 12(3) of the IBC imposes an outer imit of three hundred and thirty days, including time taken in legal proceedings. When timelines are placed even on legal proceedings, reading in the requirement of an “order being made available” under a general enactment like the Companies Act, would do violence to the special provisions enacted under the IBC where timing is critical. The IBC, as a prescriptive mechanism, affecting rights of stakeholders who are not necessarily parties to the proceedings, mandates diligence on the part of applicants who are aggrieved by the outcome of their litigation. An appeal, if considered necessary and expedient by an aggrieved party, is expected to be filed forthwith without awaiting a free copy which may be received at an indefinite stage. Hence, the omission of the words “from the date on which the order is made available” for the purposes of computation of limitation in Section 61(2) of the IBC, is a consistent signal of the intention of the legislature to nudge the parties to be proactive and facilitate timely resolution.
The SC clarified that it could not be said that the parties can automatically dispense with their obligation to apply for and obtain a certified copy for filing an appeal. Any delay in receipt of a certified copy, once an application has been filed, has been envisaged by the legislature and duly excluded to not cause any prejudice to a litigant’s right to appeal. A person wishing to file an appeal is expected to file an application for a certified copy before the expiry of the limitation period, upon which the time requisite for obtaining a copy is to be excluded. However, the time taken by the court to prepare the decree or order before an application for a copy is made cannot be excluded. If no application for a certified copy has been made, no exclusion can ensue. It could not be said that the right to receive a free copy under Section 420(3) of the Companies Act obviated the obligation on the Appellant to seek a certified copy through an application.
The SC emphasized that owing to the special nature of the IBC, the aggrieved party was expected to exercise due diligence and apply for a certified copy upon pronouncement of the order it seeks to assail, in consonance with the requirements of Rule 22(2) of the NCLAT Rules. Section 12(2) of the 1963 Act allows for an exclusion of the time requisite for obtaining a copy of the decree or order appealed against. The person aggrieved by an order under the IBC could not await the receipt of a free certified copy under Section 420(3) of the Companies Act read with Rule 50 of the NCLT Rules and prevent limitation from running. Accepting such a construction will upset the timely framework of the IBC. The litigant has to file its appeal within thirty days, which can be extended up to a period of fifteen days, and no more, upon showing sufficient cause. Rule 22(2) of the NCLAT Rules mandates the certified copy being annexed to an appeal, which continues to bind litigants under the IBC. While it is true that the tribunals may choose to exempt parties from compliance with this procedural requirement in the interest of substantial justice, as reiterated in Rule 14 of the NCLAT Rules, the discretionary waiver does not act as an automatic exception where litigants make no efforts to pursue a timely resolution of their grievance.
Decision of the Supreme Court
The SC held that the period of limitation for filing an appeal under Section 61(1) of the IBC against the NCLT Order, expired on January 30, 2020, in view of the thirty days period prescribed under Section 61(2) of the IBC. Any scope for a condonation of delay expired on February 14, 2020, in view of the outer limit of fifteen days prescribed under the proviso to Section 61(2) of the IBC. The Pandemic induced lockdown from March 23, 2020 and the Suo Motu Order has had no impact on the rights of the Appellant to institute an appeal in this proceeding. The SC emphasized that the act of filing an application for a certified copy was not just a technical requirement for computation of limitation but also an indication of the diligence of the aggrieved party in pursuing the litigation in a timely fashion. The SC further held that since the Appellant failed to apply for a certified copy, it rendered the appeal filed before the NCLAT as clearly barred by limitation. The SC thus upheld the decision of the NCLAT of having dismissed the appeal on the ground of limitation, and accordingly dismissed the instant appeal under Section 62 of the IBC.
VA View:
By this Judgement, the SC has reiterated that courts cannot condone delays beyond statutory prescriptions in special statutes containing a provision for limitation. The SC has upheld the integrity of the IBC and its fundamental purpose, that is, insolvency resolution in a speedy and time-bound manner. The SC has recognized the criticality of strict timelines under the IBC, which is crucial to the workability of the mechanism, health of the economy, recovery rate of lenders and valuation of the corporate debtor.
Since the IBC is a watershed legislation which seeks to overhaul the previous bankruptcy regime, which was afflicted by delays and indefinite legal proceedings, the SC has rightly ensured that a sleight of interpretation of procedural rules does not defeat the substantive objective of a legislation like the IBC that has an impact on the economic health of the nation.
For more information please write to Mr. Bomi Daruwala at [email protected]
