# BABULAL VARDHARJI GURJAR v. VEER GURJAR ALUMINIUM INDUSTRIES PVT. LTD. & ANR

- **Citation:** [2020] 13 S.C.R. 368
- **Court:** Supreme Court of India
- **Decided:** 2020-08-14
- **Case number:** Civil Appeal No. 6347 of 2019
- **Bench:** A.M. Khanwilkar, Dinesh Maheshwari
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/babulal-vardharji-gurjar-v-veer-gurjar-aluminium-industries-pvt-ltd-anr-34360
- **Pages:** 59

## Headnote

Insolvency and Bankruptcy Code, 2016 - ss.7 and 238-A -
Limitation Act, 1963 - s.18 and Art.137 - On or about 22.12.2007,
the Lender Banks sanctioned and extended various loans, advances
and facilities to the corporate debtor-respondent no.1 - The
respondent no.1 defaulted in payment of the amount due against
such loans, advances and facilities, its account was classified as
Non-Performing Asset on 08.07.2011 - Recovery proceedings
against the corporate debtor by the consortium of lenders u/s.19 of
the Recovery of Debts due to the Banks and Financial Institution
Act, 1993 before the DRT was started - On or about 21.03.2018,
the respondent no.2, while stating its capacity as the financial
creditor, for being the assignee of the loans and advances disbursed
by the creditor Bank to the corporate debtor, filed an application u/
s.7 of the Code before the Adjudicating Authority and sought
initiation of Corporate Insolvency Resolution Process (CIRP) in
respect of respondent no.1 - The Adjudicating Authority (NCLT)
admitted the said application and initiated CIRP u/s.7 of the Code
- Before the Appellate Tribunal (NCLAT), the appellant-the director
of the respondent no.1 company contended that the claim was barred
by time - However, the appeal was dismissed by the Appellate
Tribunal - Aggrieved, the appellant filed appeal before the Supreme
Court - The Supreme Court remanded the matter to the Appellate
Tribunal for deciding the issue of limitation with respect to the
application u/s.7 of the Code - The Appellate Tribunal held that the
right to apply u/s. 7 of the Code accrued only on 01.12.2016 i.e.
when the Code came into force and hence, the application filed by
the Financial creditor in the year 2018 is not barred by limitation;
and that the period of limitation is 12 years for recovery of possession
of the mortgaged property, therefore, the claim is not barred by
limitation - On appeal, held: The period of limitation for an
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application seeking initiation of CIRP u/s.7 of the Code is governed
by Art.137 of the Limitation Act and is, therefore, three years from
the date when right to apply accrues - In the instant case, the
application made by the respondent no.2 u/s.7 of the Code in the
month of March 2018, seeking initiation of CIRP in respect of the
corporate debtor with specific assertion to the date of default as
08.07.2011 is clearly barred by limitation for having filed much
later than the period of three years from the date of default as stated
in the application - The NCLT had not even examined the question
of limitation - Whereas, the NCLAT had decided the question of
limitation on entirely irrelevant considerations - There is nothing in
the Code to even remotely indicate if the period of limitation for the
purpose of an application u/s.7 is to commence from the date of
commencement of the Code itself - The NCLAT proceeded only on
assumption, without any foundation and without any basis - Further,
the reasoning of the NCLAT that property being mortgaged, the
period of limitation is of twelve years is again erroneous and do
not stand in conformity with the dictum of the Supreme Court - As
in the B.K. Educational Service, it was held in no uncertain terms
that the limitation provided in Art.137 governs the application u/s.
7 of the Code - Therefore, the impugned orders deserve to be set
aside and the application filed by the respondent no.2 is rejected
as being barred by limitation.
Allowing the appeal, the Court
HELD : 1. When Section 238-A of the Insolvency and
Bankruptcy Code, 2016 is read with the consistent decisions of
this Court in Innoventive Industries, B.K. Educational Services,
Swiss Ribbons, K. Sashidhar, Jignesh Shah, Vashdeo R. Bhojwani,
Gaurav Hargovindbhai Dave and Sagar Sharma respectively, the
following basics undoubtedly come to the fore: (a) that the Code
is a beneficial legislation intended to put the corporate debtor
back on its feet and is not a mere money recovery legislation

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SUPREME COURT REPORTS
[2020] 13 S.C.R.
 [2020] 13 S.C.R. 368
BABULAL VARDHARJI GURJAR
v.
VEER GURJAR ALUMINIUM INDUSTRIES PVT. LTD. & ANR.
(Civil Appeal No. 6347 of 2019)
AUGUST 14, 2020
[A.M. KHANWILKAR AND DINESH MAHESHWARI, JJ.]
Insolvency and Bankruptcy Code, 2016 - ss.7 and 238-A -
Limitation Act, 1963 - s.18 and Art.137 - On or about 22.12.2007,
the Lender Banks sanctioned and extended various loans, advances
and facilities to the corporate debtor-respondent no.1 - The
respondent no.1 defaulted in payment of the amount due against
such loans, advances and facilities, its account was classified as
Non-Performing Asset on 08.07.2011 - Recovery proceedings
against the corporate debtor by the consortium of lenders u/s.19 of
the Recovery of Debts due to the Banks and Financial Institution
Act, 1993 before the DRT was started - On or about 21.03.2018,
the respondent no.2, while stating its capacity as the financial
creditor, for being the assignee of the loans and advances disbursed
by the creditor Bank to the corporate debtor, filed an application u/
s.7 of the Code before the Adjudicating Authority and sought
initiation of Corporate Insolvency Resolution Process (CIRP) in
respect of respondent no.1 - The Adjudicating Authority (NCLT)
admitted the said application and initiated CIRP u/s.7 of the Code
- Before the Appellate Tribunal (NCLAT), the appellant-the director
of the respondent no.1 company contended that the claim was barred
by time - However, the appeal was dismissed by the Appellate
Tribunal - Aggrieved, the appellant filed appeal before the Supreme
Court - The Supreme Court remanded the matter to the Appellate
Tribunal for deciding the issue of limitation with respect to the
application u/s.7 of the Code - The Appellate Tribunal held that the
right to apply u/s. 7 of the Code accrued only on 01.12.2016 i.e.
when the Code came into force and hence, the application filed by
the Financial creditor in the year 2018 is not barred by limitation;
and that the period of limitation is 12 years for recovery of possession
of the mortgaged property, therefore, the claim is not barred by
limitation - On appeal, held: The period of limitation for an
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application seeking initiation of CIRP u/s.7 of the Code is governed
by Art.137 of the Limitation Act and is, therefore, three years from
the date when right to apply accrues - In the instant case, the
application made by the respondent no.2 u/s.7 of the Code in the
month of March 2018, seeking initiation of CIRP in respect of the
corporate debtor with specific assertion to the date of default as
08.07.2011 is clearly barred by limitation for having filed much
later than the period of three years from the date of default as stated
in the application - The NCLT had not even examined the question
of limitation - Whereas, the NCLAT had decided the question of
limitation on entirely irrelevant considerations - There is nothing in
the Code to even remotely indicate if the period of limitation for the
purpose of an application u/s.7 is to commence from the date of
commencement of the Code itself - The NCLAT proceeded only on
assumption, without any foundation and without any basis - Further,
the reasoning of the NCLAT that property being mortgaged, the
period of limitation is of twelve years is again erroneous and do
not stand in conformity with the dictum of the Supreme Court - As
in the B.K. Educational Service, it was held in no uncertain terms
that the limitation provided in Art.137 governs the application u/s.
7 of the Code - Therefore, the impugned orders deserve to be set
aside and the application filed by the respondent no.2 is rejected
as being barred by limitation.
Allowing the appeal, the Court
HELD : 1. When Section 238-A of the Insolvency and
Bankruptcy Code, 2016 is read with the consistent decisions of
this Court in Innoventive Industries, B.K. Educational Services,
Swiss Ribbons, K. Sashidhar, Jignesh Shah, Vashdeo R. Bhojwani,
Gaurav Hargovindbhai Dave and Sagar Sharma respectively, the
following basics undoubtedly come to the fore: (a) that the Code
is a beneficial legislation intended to put the corporate debtor
back on its feet and is not a mere money recovery legislation; (b)
that CIRP is not intended to be adversarial to the corporate debtor
but is aimed at protecting the interests of the corporate debtor;
(c) that intention of the Code is not to give a new lease of life to
debts which are time-barred; (d) that the period of limitation for
BABULAL VARDHARJI GURJAR v. VEER GURJAR
ALUMINIUM INDUSTRIES PVT. LTD. & ANR.
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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;
(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
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, 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. [Para 30][420-B-E]
Whether Section 18 Limitation Act could be applied to the
present case.
2. On the admitted fact situation of the present case, where
only the date of default as '08.07.2011' has been stated for the
purpose of maintaining the application under Section 7 of the
Code, and not even a foundation is laid in the application for
suggesting any acknowledgement or any other date of default, in
view of this Court, the submissions sought to be developed on
behalf of the respondent No. 2 at the later stage cannot be
permitted. It remains trite that the question of limitation is
essentially a mixed question of law and facts and when a party
seeks application of any particular provision for extension or
enlargement of the period of limitation, the relevant facts are
required to be pleaded and requisite evidence is required to be
adduced. Indisputably, in the present case, the respondent No. 2
never came out with any pleading other than stating the date of
default as '08.07.2011' in the application. That being the position,
no case for extension of period of limitation is available to be
examined. In other words, even if Section 18 of the Limitation
Act and principles thereof were applicable, the same would not
apply to the application under consideration in the present case,
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looking to the very averment regarding default therein and for
want of any other averment in regard to acknowledgement. [Para
33.1][422-D-G]
The reasonings of NCLAT
3. Only two reasons essentially appear to have weighed
with NCLAT to hold that the application in question is within
limitation: One, that the right to apply under Section 7 of the
Code accrued to the respondent financial creditor on 01.12.2016
when the Code came into force; and second, that the period of
limitation for recovery of possession of the mortgaged property
is twelve years. The reasonings so adopted by NCLAT do not
stand in conformity with the law declared by this Court and could
only be disapproved. [Para 35][423-E-F]
4. The question as to whether date of enforcement of the
Code (i.e., 01.12.2016) provides the starting point of limitation
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 the
impugned order leaves nothing to guess that such 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 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 the case of B. K. Educational Services. [Para
36][423-G-H; 424-A-B]
5. The other observations as made and the reasoning as
adopted by the Appellate Tribunal in the impugned order, that
the property having been mortgaged, the claim is not barred by
limitation because of the period of limitation of twelve years with
regard to mortgaged property, had again been erroneous and do
not stand in conformity with the dictum of this Court. [Para
37][424-E-F]
BABULAL VARDHARJI GURJAR v. VEER GURJAR
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6. The Appellate Tribunal was conscious of the decision of
this Court in B. K. Educational Services wherein it had been held
in no uncertain terms that the limitation provided in Article 137
governs the application under Section 7 of the Code. When
Article 137, being the residuary provision on the period of
limitation for "other applications" is held applicable by this Court
for the purpose of reckoning the period of limitation for an
application under Section 7 of the Code, it remains rather
inexplicable as to how the Appellate Tribunal could have applied
any other Article of Limitation Act (and that too relating to suits)
for the purpose of such an application? [Para 37.1][424-F-H]
7. There remains nothing to doubt that the Appellate
Tribunal had been in error in applying the period of limitation
provided for mortgage liability for the purpose of limitation
applicable to the application in question. The observations and
findings in the impugned order are also required to be
disapproved. [Para 37.4][425-E-F]
8. The discussion foregoing leads to the inescapable
conclusion that the application made by the respondent No. 2
under Section 7 of the Code in the month of March 2018, seeking
initiation of CIRP in respect of the corporate debtor with specific
assertion of the date of default as 08.07.2011, is clearly barred by
limitation for having been filed much later than the period of three
years from the date of default as stated in the application. The
NCLT having not examined the question of limitation; the NCLAT
having decided the question of limitation on entirely irrelevant
considerations; and the attempt on the part of the respondents
to save the limitation with reference to the principles of
acknowledgment having been found unsustainable, the impugned
orders deserve to be set aside and the application filed by the
respondent No. 2 deserves to be rejected as being barred by
limitation. [Para 38][425-F-H; 426-A]
Innoventive Industries Ltd. v. ICICI Bank: (2018) 1
SCC 407 : [2017] 8 SCR 33; B.K. Educational Services
Pvt. Ltd. v. Paras Gupta & Associates: AIR 2018 SC
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5601 : [2018] 12 SCR 794; Swiss Ribbons Private
Limited and Anr. v. Union of India and Ors. (2019) 4
SCC 17 : [2019] 3 SCR 535; K. Sashidhar v. Indian
Overseas Bank: (2019) 12 SCC 150 : [2019] 3 SCR
845; Jignesh Shah and Anr. v. Union of India and Anr.
(2019) 10 SCC 750 : [2019] 12 SCR 678; Vashdeo R.
Bhojwani v. Abhyudaya Co-operative Bank Ltd. & Anr.
(2019) 9 SCC 158 : [2019] 12 SCR 75; Gaurav
Hargovindbhai Dave v. Asset Reconstruction Company
(India) Ltd. & Anr. (2019) 10 SCC 572 : [2019] 13
SCR 224; Sagar Sharma & Anr. v. Phoenix Arc Pvt.
Ltd. & Anr (2019) 10 SCC 353: [2019] 14 SCR 974 -
relied on.
M/s. Mahabir Cold Storage v. CIT, Patna 1991 Supp
(1) SCC 402: [1990] 3 Suppl. SCR 469 N.Balakrishnan
v. Krishnamurthy (1998) 7 SCC 123 : [1998] 1 Suppl.
SCR 403; Anuj Jain v. Axis Bank Limited and Ors.
(2020) 8 SCC 401 - referred to.
Case Law Reference
[2017] 8 SCR 33
relied on
Para 7.1
[2018] 12 SCR 794
relied on
Para 9.2
[2019] 3 SCR 845
relied on
Para 13.3
[2019] 12 SCR 75
relied on
Para 13.3
[2019] 13 SCR 224
relied on
Para 13.3
[2019] 14 SCR 974
relied on
Para 13.4
[2019] 12 SCR 678
relied on
Para 13.5
[2019] 3 SCR 535
relied on
Para 13.7
[1990] 3 Suppl. SCR 469 referred to
Para 14.3
[1998] 1 Suppl. SCR 403 referred to
Para 14.5
(2020) 8 SCC 401
referred to
Para 18.1
BABULAL VARDHARJI GURJAR v. VEER GURJAR
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CIVIL APPELLATE JURISDICTION : Civil Appeal No. 6347
OF 2009.
From the Judgment and Order dated 14.05.2019 of the National
Company Law Appellate Tribunal, New Delhi in Company Appeal (AT)
Insolvency No. 549 of 2018.
Dr. Abhishek Manu Singhvi, P.S. Patwalia, Sr. Advs, Piyush Singh,
Aditya Parolia, Nithin Chandran, Akshay Srivastava, Nidhiram Shrama,
Gaurav Goel, Rajesh Kumar, Sonal Jain, Ms. Heena Sharma, Ishkaran
Singh, Ms. Namrata Singh, Ms. Kajal Sharma, Rajendra Beniwal,
Divyanshu Srivastava, Kumar Sumit, Ms. Bano Deshwal, Vishal Thakur,
Shriram, Manish Rao, R. C. Kaushik, Advs. for the appearing parties.
The Judgment of the Court was delivered by
DINESH MAHESHWARI, J.
Introductory with brief outline and issue involved
1. This appeal under Section 62 of the Insolvency and Bankruptcy
Code, 20161 is directed against the judgment and order dated 14.05.2019
passed by the National Company Law Appellate Tribunal, New Delhi2
in Company Appeal (AT) Insolvency No. 549 of 2018 whereby, the
Appellate Tribunal has rejected the contention that the application made
by respondent No. 2 under Section 7 of the Code, seeking initiation of
Corporate Insolvency Resolution Process3 in respect of the debtor
company (respondent No. 1 herein), is barred by limitation; and has
declined to interfere with the order dated 09.08.2018, passed by the
National Company Law Tribunal, Mumbai Bench4 in CP(IB)-488/I&BP/
MB/2018, for commencement of CIRP as prayed for by the respondent
No. 2.
2. A brief introduction of the parties and the subject matter as also
a thumbnail sketch of the relevant orders passed in this matter and the
issue involved shall be apposite at the very outset.
2.1. The appellant Shri Babulal Vardhaji Gurjar has been the director
of the respondent No. 1 company viz., Veer Gurjar Aluminium Industries
1 Hereinafter also referred to as 'the Code' or 'IBC'.
2 Hereinafter also referred to as 'the Appellate Tribunal' or 'NCLAT'.
3 'CIRP' for short.
4 Hereinafter also referred to as 'the Adjudicating Authority' or 'the Tribunal' or 'NCLT'.
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Pvt. Ltd.5 On or about 21.03.2018, the respondent No. 2 JM Financial
Assets Reconstruction Company Pvt. Ltd.6, while stating its capacity as
the financial creditor, for being the assignee of the loans and advances
disbursed by creditor bank to the corporate debtor, filed the said application
under Section 7 of the Code before the Adjudicating Authority and sought
initiation of CIRP in respect of the respondent No. 1.
2.2. After having considered the submissions on behalf of the
financial creditor and the corporate debtor, the Adjudicating Authority,
by its order dated 09.08.2018, admitted the application so made by the
financial creditor and appointed an interim resolution professional7.
Consequent to this order dated 09.08.2018, the corporate debtor
(respondent No. 1) is now represented by the interim resolution
professional.
2.3. Being aggrieved by the aforesaid order dated 09.08.2018, the
appellant preferred an appeal before NCLAT and contended against
maintainability of the application moved by the respondent No. 2. The
appeal so filed by the appellant was summarily dismissed by the Appellate
Tribunal by its order dated 17.09.2018. However, the order so passed by
the Appellate Tribunal was not approved by this Court in the judgment
dated 26.02.2019, passed in Civil Appeal No. 10710 of 2018, after finding
that the issue relating to limitation, though raised, was not decided by the
Appellate Tribunal. Hence, the matter was remanded to NCLAT for
specifically dealing with the issue of limitation. After such remand, the
Appellate Tribunal, by its impugned order dated 14.05.2019, has held
that neither the application under Section 7 as made in this case is barred
by limitation nor the claim of the respondent No. 2 is so barred and has,
therefore, again dismissed the appeal. Being aggrieved, the appellant
has approached this Court over again by way of the instant appeal.
3. In the impugned order dated 14.05.2019, the Appellate Tribunal
has observed that the Code having come into force on 01.12.2016, the
application made in the year 2018 is within limitation. The Appellate
Tribunal has assigned another reason that mortgage security having been
provided by the corporate debtor, the limitation period of twelve years is
available for the claim made by the financial creditor as per Article 61
5 Hereinafter also referred to as 'the corporate debtor'.
6 Hereinafter also referred to as 'the financial creditor'.
7 'IRP' for short.
BABULAL VARDHARJI GURJAR v. VEER GURJAR ALUMINIUM
INDUSTRIES PVT. LTD. [DINESH MAHESHWARI, J.]
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(b) of the Limitation Act, 19638-9 and hence, the application is within
limitation.
4. In this appeal, the order so passed by the Appellate Tribunal is
in challenge. The appellant would contend that limitation period for an
application under Section 7 of the Code is three years as per Article 137
of the Limitation Act, where the date of alleged "default" is the starting
point of limitation; and in the present case, such date of default being
specifically mentioned as 08.07.2011, the application filed by the
respondent No. 2 in the month of March 2018 is barred by limitation. On
the other hand, the respondents would argue that the liability in relation
to the debt in question having been consistently acknowledged by the
corporate debtor in its balance sheets and annual reports, fresh period of
limitation is available from the date of every such acknowledgment and
hence, the application is within time.
4.1. Thus, the basic issue involved in this matter is as to whether
the application made by respondent No. 2 under Section 7 of the Code is
within limitation.
5. On 09.08.2019, after having heard learned counsel for the
appellant and the respondent No. 2 preliminarily, we issued notice to the
respondent No.1 and by way of interim order, directed status quo in
regard to the proceedings in question.
The relevant factual and background aspects: Application
by the financial creditor
6. The substance of the relevant factual and background aspects,
as emanating from the contents of the application under Section 7 moved
by the respondent No. 2 and the observations made by NCLT and
NCLAT in the impugned orders as also those noticed from the submissions
made by the respective parties, could now be summarised as infra.
8 Hereinafter, the Limitation Act, 1963 is also referred to as 'the Limitation Act'.
9 Note: The Articles providing for different periods of limitation are contained in the
Schedule to the Limitation Act, 1963 that is divided in three major Divisions viz., First
Division (relating to suits); Second Division (relating to appeals); and Third Division
(relating to applications). Each Division is further divided in parts with reference to the
subject matter. However, the Articles in the Schedule are arranged ad seriatim. Hence,
for brevity and continuity, the Articles are mentioned with reference to 'the Limitation
Act' only. The Schedule and particular Part/Division have been referred wherever
required contextually.
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6.1. On or about 22.12.2007, the lender banks viz., Corporation
Bank, Indian Overseas Bank and Bank of India sanctioned and extended
various loans, advances and facilities to the corporate debtor viz., Veer
Gurjar Aluminium Industries Pvt. Ltd., who was engaged in
manufacturing of aluminium ingots from aluminium scrap. The corporate
debtor executed various security documents in favour of the lender banks
in the years 2008 and 2009, including those of equitable mortgage against
the facilities so obtained. The Corporation Bank proceeded to rephase/
enhance the facilities to the corporate debtor from time to time and
lastly on 27.08.2010 wherefor, various additional security documents were
executed by the corporate debtor. It has been asserted by the respondent
No. 2 that the Corporation Bank had assigned to it the rights in relations
to debts of the corporate debtor by way of Assignment Agreement dated
30.03.2013; and a deed of modification of charge over the assets of the
corporate debtor was also executed on 26.04.2013.
6.2. The corporate debtor having defaulted in payment of the
amount due against such loans, advances and facilities, its account with
Corporation Bank was classified as Non-Performing Asset10 on
08.07.2011 and that with Indian Overseas Bank was classified as NPA
on 05.08.2011. Then, on 15.11.2011, demand notice under Section 13(2)
of the Securitisation and Reconstruction of Financial Assets and
Enforcement of Securities Interest Act, 200211 was issued by Indian
Overseas Bank to the corporate debtor and its guarantors. These steps
were followed up with recovery proceedings against the corporate debtor
by the consortium of lenders and respondent No. 2 in OA No. 172/2013
before the Debts Recovery Tribunal, Aurangabad12 under Section 19 of
the Recovery of Debts Due to the Banks and Financial Institution Act,
199313.
6.3. Even when the aforesaid proceedings were pending before
DRT, on or about 21.03.2018, the respondent No. 2 moved an application
before the Adjudicating Authority under Section 7 of the Code, in Form
1 as provided in the Insolvency and Bankruptcy (Application to
Adjudicating Authority) Rules, 201614, for initiation of CIRP in relation
10 'NPA' for short.
11 Hereinafter also referred to as 'the SARFAESI Act'.
12 'DRT ' for short.
13 Hereinafter also referred to as 'the Act of 1993'.
14 Hereinafter also referred to as 'the Rules of 2016'.
BABULAL VARDHARJI GURJAR v. VEER GURJAR ALUMINIUM
INDUSTRIES PVT. LTD. [DINESH MAHESHWARI, J.]
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to the corporate debtor while stating its own capacity as the financial
creditor, for being the assignee of loans and advances disbursed by
Corporation Bank to the corporate debtor15. Several details and particulars
stated in the said application need not be recounted but, the particulars
of amount claimed to be in default and the date when such default
occurred, as stated in point No. 2 of Part III of the application, are
relevant for the present purpose and could be usefully extracted as
under16:-
6.4. It may also be usefully indicated that Part-V of the application,
drawn as per the format in Form 1, required the applicant to state the
"Particulars of Financial Debt [Documents, Records and Evidence of
Default]". The applicant stated the particulars of various securities held,
date of their creation etc., as also the particulars relating to the said
O.A. No. 172 of 2013 before DRT and notices issued thereunder. In
Point No. 5 of the said Part-V of the application, the applicant was
required to attach "the latest and complete copy of the financial contract
reflecting all amendments and waivers to date". In this regard, again,
various agreements for loan, promissory notes, tripartite agreements,
15 Note: In its written submissions, the respondent No. 2 has mentioned the date of
filing this applic
ation as '28.02.2018 ' but the copy of a pplication placed on record as Annexure A-5
(pp. 135-158) bears the date as '21.03.2018'.
16 Note: this extraction is from the copy of application placed on record as Annexure A5 (at p. 140-142). The expression "DATES" marked with * in the second column is
reproduced as found mentioned at p. 141 but, in the format appended to the Rules of
2016, this entry carries the expression "DAYS".
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consortium agreements and supplemental agreements were mentioned
by the applicant. In Point No. 8, the applicant was required to give out
other documents "in order to prove the existence of financial debt, the
amount and date of default". The contents on this Point No. 8 of Part-V
of the application could be reproduced as under:-
"8. LIST OF OTHER DOCUMENTS ATTACHED TO THIS
APPLICATION IN ORDER TO PROVE THE EXISTENCE
OF FINANCIAL DEBT, THE AMOUNT AND DATE OF
DEFAULT
i.
Registered notice dated 05.07.2011 issued by Indian
Overseas Bank to the corporate debtor to repay the overdue
amount. Hereto annexed and marked as Exhibit MM is the
copy of said registered notice.
ii.
Demand notice dated 15.11.2011 issued under section 13
(2) of the Securitisation Act by Indian Overseas Bank being
consortium leader. Hereto annexed and marked as Exhibit
NN is the copy of said Demand notice.
iii.
Publication of Demand Notice issued in two newspaper i.e
Business Standard and Saamna under the SARFEASI Act
dated 28.12.2011. Hereto annexed and marked Exhibit OO
is the copy of said Paper Publication.
iii.
(sic). Objection to the Demand Notice and the reply to the
said Objections by IOB dated 14.01.2012 and 21.01.2012
respectively. Hereto annexed and marked as Exhibit PP
and Exhibit QQ is the copy of said objection and reply letter.
v.
Registered Assignment Agreement dated 30.03.2013
between Corporation Bank and (Financial Creditor thereby
Corporation Bank assigned the debt due from Corporate
debtor along with the underlying securities in favour of the
Financial Creditor/ Applicant. Hereto annexed and marked
as Exhibit RR is the copy of said Registered Assignment
Agreement dated 30.03.2013 between Corporation Bank
and Financial Creditor."
6.5. The application so made by respondent no. 2 came to be
registered as CP(IB)-488/I&BP/MB/2018 before the Adjudicating
Authority (NCLT). On being noticed, the corporate debtor submitted its
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reply in opposition and raised various objections on the contents and
frame of the application. It was also contended that various proceedings
had been initiated with the sole aim of browbeating the corporate debtor
and forcing it to pay the unrealistic claim of the applicant. With specific
reference to the proceedings under the SARFAESI Act, it was contended
that as per the notice under Section 13 (2), the account of corporate
debtor with Indian Overseas Bank was classified as NPA on 05.08.2011
but, it was not mentioned as to when the loan account with Corporation
Bank was classified as NPA. The corporate debtor also contended that
its loan account had not been properly maintained by the respective
banks due to the defect in accounting system and it was clear that the
claim was arbitrary, inflated and not recoverable. With reference to the
proceedings pending before DRT in OA No. 172/2013, it was also
contended that IBC would not apply to cases where the bank has
approached DRT or has adopted the proceeding under the SARFAESI
Act and, for this reason, the present proceedings were not maintainable
before the Adjudicating Authority.
6.6. The applicant financial creditor filed a rejoinder and refuted
all the objections of the corporate debtor while asserting, inter alia, that
the Corporation Bank declared the account of the corporate debtor as
NPA on 08.07.2011 and this fact was mentioned in the demand notice
issued under Section 13(2) of SARFAESI Act, as sent by Indian Overseas
Bank on behalf of the consortium of banks.
Initiation order dated 09.08.2018
7. The Adjudicating Authority, in its order dated 09.08.2018, dealt
with the submissions of the parties and, while rejecting the objections of
corporate debtor in relation to the frame of application and the correctness
of loan accounts, held that the applicant was entitled to initiate CIRP
under Section 7 of the Code when there was a debt and there was
default; and that being a statutory remedy available to the financial
creditor, the corporate debtor cannot question its maintainability only for
the applicant having adopted other proceedings under other enactments.
As regards the question of debt and default, the NCLT, inter alia,
observed and held as under:-
"16. The Corporate Debtor contended that demand notice issued
under the SARFAESI Act, by Indian Overseas Bank does not
contain the date of NPA of the loan of Corporation Bank. The
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petitioner in the rejoinder submitted that the date of NPA of
Corporation Bank was mentioned as 08.07.2011 in the SARFAESI
Notice. This Bench has gone through the SARFAESI Notice and
the date of NPA of Corporation Bank is mentioned as 08.07.2011
at pg. no. 579. Hence this contention of the Corporate Debtor
fails. Further the explanation to Section 7(1) of IB Code provides
that a default includes a default in respect of a financial debt
owed not only to the Applicant Financial Creditor but also to any
other Financial Creditor of the Corporate Debtor. In view of
admission of date of NPA of Indian Overseas Bank by the
Petitioner in the reply this case squarely falls under the ambit of
explanation to Section 7(1) of the Code which is a proof of debt
and default of debt due to another Financial Creditor. This Petition
can be admitted based on the reply filed by the Corporate Debtor."
7.1. The Adjudicating Authority also referred to the decision of
this Court in the case of Innoventive Industries Ltd. v. ICICI Bank:
(2018) 1 SCC 407 as regards the scheme of the Code and the
requirements of Section 7 thereof and observed,-
"21.....The rational and reasoning which can be drawn from the
above lines of the citations clearly indicate mainly two aspects
and that is existence of debt and the default which the present
facts of the case clearly demonstrate. So any amount of argument
that deals with issues which are not pertinent and trivial to the
main issues concerned does not or cannot come in the way of
adjudication of the lis in favour of the Petitioners. The present
facts of the case are fully and comprehensively covered by the
wordings of the above citations.
22. The above discussion clearly shows that there is a debt owed
by the Corporate Debtor in favour of Corporation Bank and
subsequently on assignment of the debts by the said bank to the
Petitioner, the Corporate Debtor is liable to make the payment to
the Petitioner. Further there is ample proof to come to the
conclusion that the Corporate Debtor defaulted in making payment
to Corporation Bank and thereafter to the assignor, the Petitioner
herein.
23. This Adjudicating Authority, on perusal of the documents filed
by the Creditor, is of the view that the Corporate Debtor defaulted
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in repaying the loan availed and also placed the name of the
Insolvency Resolution Professional to act as Interim Resolution
Professional and there being no disciplinary proceedings pending
against the proposed resolution professional, therefore the
Application under sub-section (2) of section 7 is taken as
complete...."
7.2. Accordingly, the Adjudicating Authority (NCLT) admitted the
application for consideration; passed necessary order of moratorium;
and appointed the interim resolution professional.
Previous round of proceedings in appeal
8. Aggrieved by the aforesaid order dated 09.08.2018, the
appellant, erstwhile director of the corporate debtor, approached the
National Company Law Appellate Tribunal in Company Appeal (AT)
(Insolvency) No. 549 of 2018 under Section 61 of the Code, challenging
admission of the application made by the respondent No. 2.
8.1. The appeal so filed by the appellant was considered and
summarily dismissed by the Appellate Tribunal by way of its order dated
17.09.2018. The Appellate Tribunal took note of the contention urged on
behalf of the appellant that a petition under Section 19 of the Act of 1993
was pending before DRT wherein question had been raised as to whether
the amount was payable to the assignee or not. As regards this, the
Appellate Tribunal observed that initiation of CIRP cannot be annulled
merely for pendency of a petition under Section 19 of the Act of 1993;
and in terms of Section 14 of the Code, all such pending matters cannot
proceed during the period of moratorium.
8.2. It was also contended on behalf of the appellant that there
was no debt payable. After noticing this contention, the Appellate Tribunal
called upon the appellant to file an affidavit that no amount was received
or the amount received had already been paid and therefore, there was
no debt or default. In response, learned counsel for the appellant
expressed inability to file any such affidavit for the reason that the
corporate debtor had indeed availed the loan from the bank/s. After
noticing this stand of the appellant, the Appellate Tribunal felt disinclined
to interfere with the order passed by the Adjudicating Authority and
hence, dismissed the appeal while observing as under:-
"2. Learned counsel appearing on behalf of the Appellant submitted
that a petition under Section 19 of 'The Recovery of Debts Due
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to Banks and Financial Institutions Act, 1993' is pending before
Debt Recovery Tribunal, Aurangabad. Wherein question has been
raised is whether the amount is payable to the assignee or not.
3. However, the initiation of Corporate Insolvency Resolution
Process cannot be annulled merely on the ground of pendency of
a petition under Section 19 of 'The Recovery of Debts Due to
Banks and Financial Institutions Act, 1993'. In fact in terms of
Section 14 of I&B Code all such pending proceeding cannot
proceed during the period of moratorium.
4. Learned counsel appearing on behalf of the Appellant contended
that there is no debt payable. However, when we asked the counsel
to file an addition affidavit signed by the Appellant making specific
statement that they have not received any amount or amount
received has already been paid and therefore there is no debt or
there is no default, it is informed by the counsel for the Appellant
that such affidavit cannot be filed by the Appellant as the Corporate
Debtor had taken loan from the Bank.
5. In view of the aforesaid stand taken by Appellant, we are not
inclined to interfere with the impugned order dated 9th August,
2018. In absence of any merit, the appeal is dismissed. No costs."
9. Aggrieved by the aforesaid order dated 17.09.2018, the appellant
approached this Court under Section 62 of the Code in Civil Appeal No.
10710 of 2018, which was considered and decided by way of the order
dated 26.02.2019.
9.1. In the order dated 26.02.2019, this Court took note of the fact
that in appeal before the Appellate Tribunal, one of the grounds agitated
was that the claim of the respondent was barred by time for, admittedly,
the default was committed on 08.07.2011 whereas the application was
filed in the month of March, 2018.
9.2. After noticing that the principal issue relating to limitation,
though raised by the appellant, was not even decided by the Appellate
Tribunal; and after referring to the decision in B.K. Educational Services
Pvt. Ltd. v. Paras Gupta & Associates: AIR 2018 SC 5601, wherein
it was held that the Limitation Act is applicable to application filed under
Section 7 of the Code, this Court remanded the matter to the Appellate
Tribunal for deciding the issue of limitation with respect to the application
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in question in accordance with law while setting aside the impugned
order dated 17.09.2018 and while granting liberty to the parties to submit
additional affidavit/s in support of their respective contentions. This Court
observed and ordered, inter alia, as under:-
"Although, we find that the ground articulated in the appeal memo
is vague, but, as the objection regarding limitation goes to the root
of the matter and touches upon the jurisdiction of the National
Company Law Tribunal to proceed with the claim of the
respondent; and since the recent decision of this Court in B.K.
Educational Services Pvt. Ltd. Vs. Paras Gupta & Associates -
AIR 2018 SC 5601 has held that the question of limitation is
applicable even the applications filed under Section 7 of the I. &
B. Code, it would be just and necessary to answer the said objection
appropriately, in accordance with law.
Indisputably, neither the National Company Law Tribunal nor the
National Company Law Appellate Tribunal, in the present case,
has examined the said contention. Indeed, according to the
respondent, the plea of claim being barred by limitation is unstatable
and, to buttress this argument, the respondent has relied upon the
entries in the books of account of the appellant and other related
documents. However, that is a matter which ought to be agitated
before the National Company Law Appellate Tribunal in the first
place.
Accordingly, we relegate the parties before the National Company
Law Appellate Tribunal for fresh consideration of the objection
raised by the appellant that the claim of the respondent is barred
by limitation....."
The impugned order dated 14.05. 2019 by NCLAT after
remand
10. In compliance of the aforesaid order of this Court dated
26.02.2019, the Appellate Tribunal (NCLAT) took up the said appeal for
consideration afresh and proceeded to dismiss the same by way of its
impugned order dated 14.05.2019 while holding that the application in
question is not barred by limitation.
10.1. In the introductory paragraphs 1 to 4 of the impugned order
dated 14.05.2019, the Appellate Tribunal referred to the subject matter
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of appeal as also the orders passed in the previous round of proceedings;
and in paragraphs 5 and 6, took note of the rival contentions. Thereafter,
in paragraphs 7 to 14, the Appellate Tribunal took note of the background
facts including those pertaining to the loans taken by the corporate debtor
and creation of securities by way of mortgage of immovable properties
and hypothecation of stock-in-trade and plant and machinery; the
assignment in favour of respondent No. 2 by the lender bank; the loan
having been shown by the corporate debtor in its annual reports; pendency
of the petition under Section 19 of the Act of 1993 for recovery of the
due amount of loan; and a letter dated 31.07.2018 said to have been sent
on behalf of the corporate debtor to the respondent No. 2 for one time
settlement17.
10.1.1. In paragraph 15 of the impugned order, the Appellate
Tribunal referred to the decision of this Court in the case of B. K.
Educational Services (supra) as also Section 238-A of the Code to
notice that law of limitation is applicable to the application under Section
7 of the Code. However, in paragraph 16, the Appellate Tribunal made
the observation that 'for filing the application under Section 7 of the
I&B Code, Article 132 of Part 2 (other application) is applicable';
and proceeded to reproduce the said Article 132 of the Limitation Act.18
Thereafter, in paragraphs 17 to 19, the Appellate Tribunal referred to the
frame of Schedule to the Limitation Act and its Divisions, dealing with
suits, appeals and applications respectively.