Supreme Court on Applicability of Limitation Act in the resolution process

Supreme Court on Applicability of Limitation Act in the resolution process

Brief Introduction of the Appeal:

The appellant Mr. V.Nagarajan was the Resolution Professional in the liquidation proceeding against Corporate Debtor (Cethar Ltd.). SKS Ispat and Power Ltd(Respondent 1) is the holding company for its subsidiary SKS Power Generation Chhattisgarh Ltd(Respondent 10), who had entered into engineering service contracts with Corporate Debtor. In the original order passed by NCLT against Respondents in the liquidation proceedings of the Corporate Debtor (Cethar Ltd.), dated 13.Dec.2019, NCLT had dismissed the appellant’s miscellaneous application for interim relief to invoke bank guarantees by respondent 10(SKS Power Generation Chhattisgarh Ltd.). Respondent 10 was not part of the proceedings filed by appellant against respondent’s 1-4 under Sections 43 and 44 of the IBC, where charges of undervalued transactions against Corporate Debtor by respondent’s 1-4 were identified. But the appellant claimed that Respondent 1 and Respondent 10 had colluded and undervalued transaction worth INR. 400 crores and made settlements only of INR. 4.58 crores and stated that investigations are underway by CBI and the enforcement directorate too. But since Respondent 10 was not part of Section 43 and Section 44 proceedings by appellant, NCLT dismissed appellant’s suit from restraining it to invoke the bank guarantees of the Corporate Debtor, for failure to perform its services, following respondent 1’s orders. Further, the NCLT had also refused to provide the injunction against invocation of performance guarantee on the grounds that performance guarantees are not ‘security interest’ as defined under Section 3(31) of IBC and only instruments holding security interest can be restrained from being executed during a resolution process.

The above order was passed by NCLT and the appellant was present when the order was passed. The order was uploaded in the NCLT website only on 12.Mar.2020 with incorrect name of judicial members which was re-uploaded with corrections on 20.Mar.2020. Further, the appellant alleged that he has not received the free copy of the order as per Section 420(3) of the Companies Act, 2013 and Rule 50 of NCLT Rules, 2016 and owing to the pandemic, had filed an appeal before NCLAT on 8.Jun.2020, challenging the order of NCLT, after filing a application for certified copies of the order on 23.Mar.2020.

The NCLAT dismissed the appeal made by the appellant under the grounds that the appeal made by the appellant has barred limitation and as per Section 61(2) of IBC an aggrieved person can appeal to NCLAT within 30 days, which can be extended by another 15 days if a application for condonation of delay is presented. NCLAT highlighted that after the elapse of statutory time period of 30 days after order, an application for condonation of delay was not filed and the appeal was not made along with a certified copy of the impugned order and that the appellant has not provided any evidence to prove that he’s has not been issued with a certified or free copy of the order. NCLAT further highlighted NCLT’s point that even on merit, since performance guarantees are not ‘security interest’, there was no ground for interference.

Contention of Appellant:

The reasons given by Appellant for presenting the appeal to the Supreme Court are elaborated below.

The Appellant did not receive the certified or free copy of the order as per Section 420(3) of the Companies Act, 2013 and Rule 50 of NCLT Rules, 2016 within the limitation period for the appeal.

The order was uploaded on the website of NCLT only by 12.Mar.2020 which was erroneous and re-uploaded by 20.Mar.2020. Further, the appellant requested for certified copy of the order on 23.Mar.2020. Owing to pandemic, NCLAT was closed from 24.Mar.2020 and virtual hearings commenced from 30.May.2020. The appellant filed the appeal with NCLAT on 08.Jun.2020 and is of the opinion that the appeal was made within the limitation period of 30 days, excluding the closure period of the Court on account of pandemic, with a downloaded copy of the order as he was yet to receive the free copy or certified copy. The courts had also stopped the limitation clock from 15.Mar.2020 onwards on account of the pandemic.

Further, eventhough an appeal to NCLAT has to be with a certified copy of the impugned order, Rule 14 of the NCLAT Rules permits a waiver from compliance of the rules and accept a downloaded copy of the order. The appeal was not found effective on this ground as the appellant had already filed an application with NCLAT for waiver of filing a certified copy of the order and it was accepted as per Rule 26 and 27 of NCLAT Rules.

As per Section 420(3) of the Companies Act, 2013 and Rule 50 of NCLT Rules, 2016 mandates a free copy and the appellant had not received it, the appellant’s contention was that the period of limitation starts only from the date of receipt of certified or free copy by aggrieved person. Also the appellant stated that since courts were uploading the order copies online, this exempted them from providing certified copy and the period of limitation commenced from the date of upload in website. Further the appellant submitted that only from the date when order is made available, can an appeal be made and stated that an appeal cannot be made to NCLAT when order copy is unavailable. Further the appellant stated that an application for condonation of delay was not required when free copy which is mandated was not made available to the appellant and in spite of the failure on the part of the Court to provide the free copy, the appellant had filed the appeal on time with the downloaded copy.

The appellant also stated that since the NCLAT had not heard any arguments before passing the order on account of limitation, the NCLAT’s order is defective and when an appeal is barred by limitation, no discussion on merits holds good.

Contention of the respondents:

The respondents contention was on the ground that a certified copy of the order ought to have been requested by the appellant and that section 61(2) does not specifically state that the limitation period starts only from the date the free copy is made available to the aggrieved person. The respondent further stated that as per NCLAT’s order in Pr.Director General of Income Tax Vs. Spartek Ceramics India Ltd., the 30 days for filing the appeal starts from the date when the aggrieved person has ‘knowledge’ of the order. The respondent states that the period of limitation can be calculated from the date when order was passed or from the date of application for a certified copy, which should have been done within the period of limitation. They also stated that the appellant should have waited for the free copy or applied for the certified copy within the limitation period. Since the appellant didn’t get free copy nor applied for certified copy within the 45 days period of limitation granted IBC, he is not eligible for shelter under the limitation act. Further the respondent alleged that since under IBC, time is of essence, the appellant ought to have sought relief on time.

Further, since the promoters of Respondent 1 and Respondent 10 are different and no relief was sought by appellant under Section 43 and 44 of IBC in the petition filed by him against Respondent 10, Respondent 10 cannot be made party to this appeal and also since performance guarantees are not ‘security interest’, the appeal does not hold merit.

Analysis and Final order by Court:

The Supreme Court quoted Section 238 of IBC which gives it the provision to override other laws. It further stated that the IBC invokes the Limitation Act under Section 238-A and as per Section 29(2) of the Limitation Act, special acts have overriding effect with respect to period of limitation when specifically stated in the special acts. Hence it is evident from this point that the IBC being a special Act has an overriding effect with respect to period of limitation. Further, the Supreme Court has listed the provisions with respect to limitation under the NCLT, NCLAT, Companies Act and Limitation Act and reiterated the supremacy of the period of limitation stated in IBC.

On the question of order copies, the Supreme Court states that if an appeal has to be filed in an expedient manner, it requires diligence on the part of the applicant and the aggrieved parties are not to wait for the free copies of the order which might take indefinitely. The order further quoted the provision related to presenting of order copy to parties, concerned by the Tribunal.

On the question of certified copy being filed along with an appeal, the Supreme Court reiterates that the applicant has to right of receipt of a certified order copy on an application being made and any delay in receipt of the certified copy will be protected by the Courts. As per the Limitation Act, the onus is on the aggrieved party to apply for the certified copies within the period of Limitation and not extend such timeframes further. And on application, any delay in the provision of the order copies will be protected by the Courts. Further, the appellant’s plea that the NCLAT Rules exempts filing of certified copies in several cases was countered stating that such a waiver by the NCLAT Rules is not a right conferred on the appellate and it infact indicates how quickly the aggrieved parties require appeals to be made in a timely fashion, to be resolved quickly.

Hence it was concluded in this case that the appeal filed by the appellant was time barred as per Section 61(1) and Section 61(2) of the IBC as an application for obtaining the certified copies was not made by the appellant within the period of limitation. On the second question of filing an appeal with the certified copies of the impugned order, the onus lies with the appellant to have filed for the certified copies and since IBC is a code meant for timely resolution of disputes and has economic significance, even though Rule 14 of NCLAT Rules provides for waivers from such procedural compliances, it does not hold appropriate in this present case. The Supreme Court therefore concluded that the order of the NCLAT was correct when it dismissed the appeal on grounds of limitation and further dismissed the present appeal to the Supreme Court on same grounds.

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