# JIGNESH SHAH & ANR v. UNION OF INDIA & ANR

- **Citation:** [2019] 12 S.C.R. 678
- **Court:** Supreme Court of India
- **Decided:** 2019-09-25
- **Case number:** Special Leave Petition (Diary No.13468 of 2019
- **Bench:** R. F. Nariman, R. Subhash Reddy, Surya Kant
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/jignesh-shah-anr-v-union-of-india-anr-33125
- **Pages:** 33

## Headnote

Insolvency and Bankruptcy Code, 2016: s. 238A - Limitation
- Application of Limitation Act, 1963 to applications u/s 7 under
IBC - Execution of share purchase agreement between MCX, MCXE and Financial Services Company in 2009 whereby Financial
Services Company agreed to purchase equity shares of MCX-E
from MCX - Pursuant thereto, LF, a group company of MCX, issued
a 'Letter of Undertaking' to Financial Services Company to
purchase shares of MCX-SX after a period of one year, but before
a period of three years, from the date of investment - Expiry of
the said period - In 2012 Financial Services Company exercised
its option to sell its entire holding of shares in MCX-SX - However,
LF's case that it was under no legal or contractual obligation to
buy the said shares - Suit by Financial Services Company for
specific performance of the Letter of Undertaking by LF - High
Court passing an injunction order by restraining LF from alienating
its assets pending disposal of the suit - In 2016, Financial Services
Company filing winding up petition against LF u/s. 433(e) in the
High Court - However, due to introduction of IBC, 2016, transfer
of the winding up petition to the NCLT as an application u/s. 7 -
NCLT admitted the petition holding that the bar of limitation not
attracted - Appeal by shareholders of LF - Dismissed by NCLAT
- On appeal, held: Trigger point for the purpose of limitation for
filing of a winding up petition would be the date of default in
payment of the debt - Though it is clear that a winding up
proceeding is a proceeding 'in rem' and not a recovery proceeding,
the trigger of limitation for the winding up petition would be the
date of default - On facts, statutory notice given on 03.11.2015
 [2019] 12 S.C.R. 678
678
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does not refer to any facts as to the commercial insolvency of LF
- Statutory notice only refers to the suit proceedings and attachment
by the Economic Offences Wing in December 2013 - Company's
insolvency neither been pleaded nor is on facts - In Form-1, upon
transfer of the winding up proceedings to the NCLT, date of default
is 19.08.2012; making it clear that three-years from that date had
long since elapsed when the winding up petition was filed in 2016
- Thus, the winding up Petition being beyond the period of threeyears mentioned in Article 137 of the Limitation Act is time-barred,
and cannot therefore be proceeded with - Impugned judgment of
the NCLAT and the judgment of the NCLT set aside - Limitation
Act, 1963 - Article 137 - Companies Act, 1956 - ss. 433 and 434.
Disposing of Writ Petition (Civil) No.455 of 2019, Special
Leave Petition (Diary No.13468 of 2019), Transfer Petition (Civil)
No.817 of 2019 and allowing Civil Appeal (Diary No. 16521 of
2019), the Court
HELD: 1.1 A suit for recovery based upon a cause of action
that is within limitation cannot in any manner impact the separate
and independent remedy of a winding up proceeding. In law, when
time begins to run, it can only be extended in the manner
provided in the Limitation Act. For example, an
acknowledgement of liability under Section 18 of the Limitation
Act would certainly extend the limitation period, but a suit for
recovery, which is a separate and independent proceeding
distinct from the remedy of winding up would, in no manner,
impact the limitation within which the winding up proceeding is
to be filed, by somehow keeping the debt alive for the purpose
of the winding up proceeding. [Para 19] [701-B-D]
1.2 The Financial Services Company pursued with
reasonable diligence the cause of action which arose in August,
2012 by filing a suit against LF for specific performance of the
Letter of Undertaking in June, 2013. What has been lost by the
said party's own inaction or laches, is the filing of the Winding
up Petition long after the trigger for filing of the said petition
had taken place; the trigger being the debt that became due to
Financial Services, in repayment of which default has taken
place. [Para 21] [7

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SUPREME COURT REPORTS
[2019] 12 S.C.R.
JIGNESH SHAH & ANR.
v.
UNION OF INDIA & ANR.
(Writ Petition (Civil) No. 455 of 2019)
SEPTEMBER 25, 2019
[R. F. NARIMAN, R. SUBHASH REDDY
AND SURYA KANT, JJ.]
Insolvency and Bankruptcy Code, 2016: s. 238A - Limitation
- Application of Limitation Act, 1963 to applications u/s 7 under
IBC - Execution of share purchase agreement between MCX, MCXE and Financial Services Company in 2009 whereby Financial
Services Company agreed to purchase equity shares of MCX-E
from MCX - Pursuant thereto, LF, a group company of MCX, issued
a 'Letter of Undertaking' to Financial Services Company to
purchase shares of MCX-SX after a period of one year, but before
a period of three years, from the date of investment - Expiry of
the said period - In 2012 Financial Services Company exercised
its option to sell its entire holding of shares in MCX-SX - However,
LF's case that it was under no legal or contractual obligation to
buy the said shares - Suit by Financial Services Company for
specific performance of the Letter of Undertaking by LF - High
Court passing an injunction order by restraining LF from alienating
its assets pending disposal of the suit - In 2016, Financial Services
Company filing winding up petition against LF u/s. 433(e) in the
High Court - However, due to introduction of IBC, 2016, transfer
of the winding up petition to the NCLT as an application u/s. 7 -
NCLT admitted the petition holding that the bar of limitation not
attracted - Appeal by shareholders of LF - Dismissed by NCLAT
- On appeal, held: Trigger point for the purpose of limitation for
filing of a winding up petition would be the date of default in
payment of the debt - Though it is clear that a winding up
proceeding is a proceeding 'in rem' and not a recovery proceeding,
the trigger of limitation for the winding up petition would be the
date of default - On facts, statutory notice given on 03.11.2015
 [2019] 12 S.C.R. 678
678
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does not refer to any facts as to the commercial insolvency of LF
- Statutory notice only refers to the suit proceedings and attachment
by the Economic Offences Wing in December 2013 - Company's
insolvency neither been pleaded nor is on facts - In Form-1, upon
transfer of the winding up proceedings to the NCLT, date of default
is 19.08.2012; making it clear that three-years from that date had
long since elapsed when the winding up petition was filed in 2016
- Thus, the winding up Petition being beyond the period of threeyears mentioned in Article 137 of the Limitation Act is time-barred,
and cannot therefore be proceeded with - Impugned judgment of
the NCLAT and the judgment of the NCLT set aside - Limitation
Act, 1963 - Article 137 - Companies Act, 1956 - ss. 433 and 434.
Disposing of Writ Petition (Civil) No.455 of 2019, Special
Leave Petition (Diary No.13468 of 2019), Transfer Petition (Civil)
No.817 of 2019 and allowing Civil Appeal (Diary No. 16521 of
2019), the Court
HELD: 1.1 A suit for recovery based upon a cause of action
that is within limitation cannot in any manner impact the separate
and independent remedy of a winding up proceeding. In law, when
time begins to run, it can only be extended in the manner
provided in the Limitation Act. For example, an
acknowledgement of liability under Section 18 of the Limitation
Act would certainly extend the limitation period, but a suit for
recovery, which is a separate and independent proceeding
distinct from the remedy of winding up would, in no manner,
impact the limitation within which the winding up proceeding is
to be filed, by somehow keeping the debt alive for the purpose
of the winding up proceeding. [Para 19] [701-B-D]
1.2 The Financial Services Company pursued with
reasonable diligence the cause of action which arose in August,
2012 by filing a suit against LF for specific performance of the
Letter of Undertaking in June, 2013. What has been lost by the
said party's own inaction or laches, is the filing of the Winding
up Petition long after the trigger for filing of the said petition
had taken place; the trigger being the debt that became due to
Financial Services, in repayment of which default has taken
place. [Para 21] [703-D-E]
JIGNESH SHAH & ANR. v. UNION OF INDIA & ANR.
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SUPREME COURT REPORTS
[2019] 12 S.C.R.
1.3 A reading of the Section 433(e) and Section 434 of the
Companies Act, 1956 would show that the starting point of the
period of limitation is when the company is unable to pay its
debts, and that Section 434 is a deeming provision which refers
to three situations in which a Company shall be deemed to be
"unable to pay its debts" under Section 433(e). In the first
situation, if a demand is made by the creditor to whom the
company is indebted in a sum exceeding one lakh then due,
requiring the company to pay the sum so due, and the company
has for three weeks thereafter "neglected to pay the sum", or
to secure or compound for it to the reasonable satisfaction of
the creditor. "Neglected to pay" would arise only on default to
pay the sum due, which would clearly be a fixed date depending
on the facts of each case. Equally in the second situation, if
execution or other process is issued on a decree or order of
any Court or Tribunal in favour of a creditor of the company, and
is returned unsatisfied in whole or in part, default on the part of
the debtor company occurs. This again is clearly a fixed date
depending on the facts of each case. And in the third situation,
it is necessary to prove to the "satisfaction of the Tribunal" that
the company is unable to pay its debts. The trigger point is the
date on which default is committed, on account of which the
Company is unable to pay its debts. This again is a fixed date
that can be proved on the facts of each case. Thus, Section 433(e)
read with Section 434 of the Companies Act, 1956 would show
that the trigger point for the purpose of limitation for filing of a
winding up petition under Section 433(e) would be the date of
default in payment of the debt in any of the three situations
mentioned in Section 434. [Para 22] [704-D-H; 705-A]
1.4 Nowhere in the Winding up Petition is it alleged that
the company sought to be wound-up has lost its substratum, in
the sense that there is no reasonable prospect of it ever making
a profit in the future, nor can it be said that the company had
abandoned its business and is, therefore, unable to meet the
outstandings owed by it. On the other hand, what emerges, is
that it is not open for a company to say that a debt is undisputed,
that it has ability to pay the debt, but will not pay the debt.
Equally, where a debt is clearly owed, but the exact amount of
debt is disputed, the company will be held to be unable to pay
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its debts. What has to be seen in each case is whether the debt
is bona fide disputed. If so, without more, a winding up petition
would then be dismissed. One other thing must be noticed at
this stage. The trigger for limitation is the inability of a company
to pay its debts. Undoubtedly, this trigger occurs when a default
takes place, after which the debt remains outstanding and is not
paid. It is this date alone that is relevant for the purpose of
triggering limitation for the filing of a winding up petition.
Though it is clear that a winding up proceeding is a proceeding
'in rem' and not a recovery proceeding, the trigger of limitation,
so far as the winding up petition is concerned, would be the date
of default. Questions as to commercial solvency arise in cases
covered by Sections 434(1)(c) of the Companies Act, 1956,
where the debt has first to be proved, after which the Court will
then look to the wishes of the other creditors and commercial
solvency of the company as a whole. The stage at which the
Court, therefore, examines whether the company is
commercially insolvent is once it begins to hear the winding up
petition for admission on merits. Limitation attaches insofar as
petitions filed under Section 433(e) are concerned at the stage
that default occurs for, it is at this stage that the debt becomes
payable. For this reason, it cannot be said that the cause of action
for the purposes of limitation would include the commercial
insolvency or the loss of substratum of the company. [Para 25]
[706-G-H; 707-A-E]
1.5 Softsule (P) Ltd., Re states the law on winding up
petitions filed under Section 433(a) of the Companies Act, 1956,
the primary test is that a winding up petition is not a legitimate
means of seeking to enforce payment of a debt which is bona
fide disputed by the Company. Absent such dispute, the petition
may be admitted. Equally, where the debt is bona fide disputed,
there cannot be 'neglect to pay' within the meaning of Section
434(1)(a) of the Companies Act, 1956 so that the deeming
provision then does not come into play. Also, the moment there
is a bona fide dispute, the debt is then not 'due'. The High Court
also correctly appreciates that whether the company is
commercially solvent is one of the considerations in order to
determine whether the company is able to pay its debts or not.
[Para 28] [709-D-F]
JIGNESH SHAH & ANR. v. UNION OF INDIA & ANR.
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SUPREME COURT REPORTS
[2019] 12 S.C.R.
Softsule (P) Ltd., Re (1977) 47 Comp Cas 438 (Bom)
- approved.
1.6 Even on the facts of this case, the Winding up Petition
alleges that the ultimatum to the Respondent company asserting
that the Respondent company was legally obliged to purchase
the requisite shares in accordance with the terms of the Letter
of Undertaking was on 7th January, 2013. By this date at the very
latest, the cause of action for filing a petition under Section
433(e) certainly arose. Also, the statutory notice given on 3rd
November, 2015 does not refer to any facts as to the commercial
insolvency of LF. The statutory notice only refers to the suit
proceedings and attachment by the EOW which had taken place
long before in December 2013. In the Winding up Petition itself,
what is referred to is the fall in the assets of LF to being worth
approximately INR 200 crores as of October, 2016, which again
does not correlate with 3rd November, 2015, being the date on
which the statutory notice was itself issued. This again is only
for the purpose of appointing an Officer of the Court as Official
Liquidator in order to manage the day-to-day affairs and
otherwise secure and safeguard the assets of the Respondent
company. There is no averment in the petition that thanks to
these or other facts the Company's substratum has disappeared,
or that the Company is otherwise commercially insolvent. It is
clear therefore that even on facts, the company's substratum
disappearing or the commercial insolvency of the company has
not been pleaded. Whereas, in Form-1, upon transfer of the
winding up proceedings to the NCLT, what is correctly stated
is that the date of default is 19th August, 2012; making it clear
that three-years from that date had long since elapsed when the
Winding up Petition under Section 433(e) was filed on 21st
October, 2016. [Para 29, 30] [709-G-H; 710-A-D]
1.7 The Winding up Petition filed on 21st October, 2016
being beyond the period of three-years mentioned in Article 137
of the Limitation Act is time-barred, and cannot therefore be
proceeded with any further. Thus, impugned judgment of the
NCLAT and the judgment of the NCLT is set aside. [Para 31]
[710-E-F]
Rajender Singh and Ors. v. Santa Singh and Ors.
(1973) 2 SCC 705 : [1974] 1 SCR 381 - relied on.
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B.K. Educational Services Pvt. Ltd. v. Parag Gupta and
Associates (2018) SCC OnLine 1921 ; M.P. Steel
Corporation v. CCE (2015) 7 SCC 58 ; Hariom
Firestock Limited v. Sunjal Engineering Pvt. Ltd.
(1999) 96 Comp. Cas 349 ; Ferro Alloys Corporation
Ltd. v. Rajhans Steel Ltd. (2000) Comp Cas 426 ;
Rameswar Prasad Kejriwal & Sons Ltd. v. M/s.
Garodia Hardware Stores (2002) 108 Comp Cas 187
; Dr. Dipankar Chakraborty v. Allahabad Bank & Ors.
(2017) SCC OnLine Cal 8742 ; Indo Alusys Industries
v. Assotech Contracts (India) Ltd. (2009) 110 DRJ 384
; M/s Madhusudan Gordhandas & Co. v. Madhu
Woollen Industries Pvt. Ltd. (1971) 3 SCC 632 : [1972]
2 SCR 201 ; Pradeshiya Industrial & Investment
Corporation of U.P. v. North India Petrochemicals Ltd.
and Anr. (1994) 3 SCC 348 ; Mediquip Systems (P)
Ltd. v. Proxima Medical System GMBH (2005) 7 SCC
42 : [2005] 2 SCR 1015 ; Re: Messrs: Bhimji Nanji
and Co. (1969) Mh.L.J. 827 - referred to.
Board of Regents of the University of the State of New
York et. al. v. Mary Tomanio 100 S. Ct. 1790 ; Martiza
Alamo-Hornedo v. Juan Carlos Puig and Jose PerezRiera 745 F.3d 578 ; Re Karnos Property Co. Ltd.
(1989) 5 B.C.C. 14 - referred to.
Case Law Reference
(2018) SCC OnLine 1921
referred to
Para 5
(2000) Comp Cas 426
referred to
Para 12
(1999) 96 Comp. Cas 349
referred to
Para 11
(2000) Comp Cas 426
referred to
Para 12
(2002) 108 Comp Cas 187
referred to
Para 13
(2017) SCC OnLine Cal 8742 referred to
Para 14
(2009) 110 DRJ 384
referred to
Para 15
(1969) Mh.L.J. 827
referred to
Para 20
[1974] 1 SCR 381
relied on
Para 21
JIGNESH SHAH & ANR. v. UNION OF INDIA & ANR.
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SUPREME COURT REPORTS
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[1972] 2 SCR 201
referred to
Para 23
[1994] 1 SCR 815
referred to
Para 26
[2005] 2 SCR 1015
referred to
Para 27
(1977) 47 Comp Cas 438
approved
Para 28
CIVIL ORIGINAL/APPELLATE JURISDICTION : Writ
Petition (Civil) No. 455 of 2019.
[Under Article 32 of the Constitution of India.]
With
T.P.(C) No. 817 of 2019, W.P.(C) No. 645 of 2019, C.A. Nos.
7618-7619 of 2019, Diary No. 13468 of 2019.
Dr. A. M. Singhvi, Neeraj Kishan Kaul, Sr. Advs., Rajiv Raheja,
Ms. Liz Mathew, Mahesh Agarwal, Arvind Lakhawat, Ankur Saigal,
Himanshu Satija, Ms. Priyanka Vora, E. C.Agrawala, Shaishir S. Divatia
Samar Kachwaha, Ms. Dendri Neogi, Ms. C. Parwani, Navneet R.,
Ms. Sunali Jain, Ms. Namisha Chadha, Ms. Pritha Suri, Nishant Rao,
Ms. Diksha Rai, Ms. Palak Mahajan, Vaibhav Manu Srivastava, Anish
R. Shah, Advs. for the appearing parties.
The Judgment of the Court was delivered by
R. F. NARIMAN, J.
W.P.(C) No.645 OF 2019
1. The issues involved in Writ Petition (Civil) No.645 of 2019 are
entirely different from the Writ Petition (Civil) No.455 of 2019 and its
other connected matters. This writ petition is accordingly de-tagged from
Writ Petition (Civil) No.455 of 2019. The Registry is directed to list
this writ petition separately.
W.P.(C) No.455 of 2019 & Civil Appeal (Diary No.16521
of 2019)
2. Delay is condoned. Civil Appeal (Diary No. 16521 of 2019)
is admitted.
3. Writ Petition (Civil) No.455 of 2019 and Civil Appeal (Diary
No. 16521 of 2019) have been filed by Shri Jignesh Shah and Smt.
Pushpa Shah respectively, both of whom are shareholders of La-Fin
Financial Services Pvt. Ltd. (hereinafter "La-Fin") assailing the order
of the National Company Law Tribunal, Mumbai Bench (hereinafter
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referred to as the "NCLT") admitting a winding up petition that was
filed by IL&FS Financial Services Ltd. (hereinafter referred to as
"IL&FS") against La-Fin before the High Court of Judicature at
Bombay (hereinafter referred to as the "Bombay High Court"), which
was transferred to the NCLT and then heard as a Section 7 application
under the Insolvency and Bankruptcy Code, 2016 (hereinafter referred
to the "the Code").
4. The brief facts necessary to appreciate the narrow controversy
that arises in Writ Petition (Civil) No.455 of 2019 and its connected
matters are as follows:
(i) On 20th August, 2009, a share purchase agreement was
executed between Multi-Commodity Exchange India
Limited (hereinafter referred to as "MCX"), MCX Stock
Exchange Limited (hereinafter referred to as "MCX-SX")
and IL&FS, whereby IL&FS agreed to purchase 442 lakh
equity shares of MCX-SX from MCX.
(ii) Pursuant to this agreement, La-Fin, as a group company of
MCX, issued a 'Letter of Undertaking' to IL&FS on 20th
August, 2009 (hereinafter referred to as the "Letter of
Undertaking") stating that La-Fin or its appointed nominees
would offer to purchase from IL&FS the shares of MCXSX after a period of one year, but before a period of three
years, from the date of investment. On facts, this period of
three years expired in August, 2012.
(iii) IL&FS, therefore, by its letter dated 3rd August, 2012,
exercised its option to sell its entire holding of shares in
MCX-SX, and called upon La-Fin to purchase these shares
in accordance with the Letter of Undertaking. On 16th
August, 2012, La-Fin replied that it was under no legal or
contractual obligation to buy the aforesaid shares.
(iv) Thereafter, correspondence between the parties continued,
until finally, on 19th June, 2013, IL&FS filed a Suit No.449
of 2013 in the Bombay High Court for specific performance
of the Letter of Undertaking by La-Fin or, in the alternative,
for damages. It is important to note that the cause of action
for the suit - as stated in the plaint - arose on 16th August,
2012, i.e. the day La-Fin purportedly refused to honour its
obligation under the Letter of Undertaking.
JIGNESH SHAH & ANR. v. UNION OF
INDIA & ANR. [R. F. NARIMAN, J.]
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[2019] 12 S.C.R.
(v) On 13th October, 2014, a learned Single Judge of the
Bombay High Court passed an injunction order restraining
La-Fin from alienating its assets pending disposal of the suit,
subject to attachments of La-Fin's properties that had been
made by the Economic Offences Wing of the Mumbai
Police (hereinafter referred to as the "EOW") during the
pendency of the suit. An appeal against this order was
dismissed by a Division Bench of the Bombay High Court
on 11th September, 2015.
(vi) On 3rd November, 2015, a statutory notice under Section 433
and 434 of the Companies Act, 1956 was issued by IL&FS
to La-Fin, referring to the attachment by the EOW, and
stating that La-Fin was obviously in no financial position to
pay the sum of INR 232,50,00,000/- which, according to
IL&FS, was owing to them as of 31st October, 2015. On
18th November, 2015, a reply was promptly given by LaFin to the aforesaid notice referring to the pending suit, and
stoutly disputing the fact that any amount was due and
payable. The reply went on to state that La-Fin was
otherwise commercially sound and that the statutory notice
issued under Sections 433 and 434 of the Companies Act,
1956 was only a pressure tactic.
(vii) On 21st October, 2016, a winding up petition (hereinafter
referred to as the "Winding up Petition") was then filed by
IL&FS against La-Fin in the Bombay High Court under
Section 433(e) of the Companies Act, 1956.
(viii) The Code came into force on 1st December, 2016, and as
a result, as per the Insolvency and Bankruptcy (Application
to Adjudicating Authority) Rules, 2016, the Winding up
Petition was transferred to the NCLT as a Section 7
application under the Code. The statutory form under these
Rules, namely, Form-1 was filled up by IL&FS indicating
that the date of default was 19th August, 2012.
(ix) On 28th August, 2018, the said Winding up Petition was
admitted by the NCLT as an application under Section 7 of
the Code, stating on a reading of the share purchase
agreement and the Letter of Undertaking that a financial
debt had, in fact, been incurred by La-Fin. The National
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Company Law Appellate Tribunal (hereinafter referred to
as the "NCLAT") by an order dated 21st January, 2019
dismissed the appeal filed by Shri Jignesh Shah against the
aforesaid admission order, agreeing with the NCLT that the
aforesaid transaction would fall within the meaning of
"financial debt" under the Code, and that the bar of
limitation would not be attracted as the Winding up Petition
was filed within three years of the date on which the Code
came into force, viz., 1st December, 2016.
(x) A Writ Petition was filed by Smt. Pushpa Shah against these
orders in the Bombay High Court, challenging certain
provisions of the Code, with which we are not directly
concerned. Writ Petition (Civil) No.455 of 2019 was then
filed in this Court on 4th April, 2019 challenging the
constitutionality of certain provisions of the Code, as well
as the NCLT and NCLAT orders, after which the Civil
Appeal (Diary No. 16521 of 2019) was also filed against
the NCLAT order under Section 62 of the Code.
5. Dr. Abhishek Manu Singhvi, learned Senior Advocate
appearing on behalf of the Petitioners/Appellants, did not go into the
merits of the case, but has raised only the statutory bar of limitation
against IL&FS. According to the learned Senior Advocate, after this
Court's judgment in B.K. Educational Services Pvt. Ltd. v. Parag
Gupta and Associates 2018 SCC OnLine 1921, it is clear that the
Limitation Act, 1963 (hereinafter referred to as the "Limitation Act")
would apply to all Section 7 applications that are filed under the Code
and that the residuary Article, i.e., Article 137 of the Limitation Act
would be attracted to the facts of this case. Inasmuch as the Winding
up Petition that has been transferred to the NCLT was filed on 21st
October, 2016, i.e., beyond the period of three years prescribed (as the
cause of action had arisen in August, 2012), it is clear that a time-barred
winding up petition filed under Section 433 of the Companies Act, 1956
would not suddenly get resuscitated into a Section 7 petition under the
Code filed within time, by virtue of the transfer of such petition. He
relied heavily on B.K. Educational Services Pvt. Ltd. (supra) which,
according to him, covered this case on all fours. In addition, he relied
upon High Court judgments, Judgments from the United States of
America, and one English judgment to buttress the proposition that the
JIGNESH SHAH & ANR. v. UNION OF
INDIA & ANR. [R. F. NARIMAN, J.]
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mere filing of a suit for specific performance would not in any manner
impact the limitation period for a winding up petition, which as a separate
and independent remedy, must fall or stand on its own legs. He also
painstakingly took us through the statutory notice under Sections 433
and 434 sent by IL&FS, as well as the Winding up Petition filed by
IL&FS, and relied heavily on the fact that the Form-1 (which was filled
by IL&FS in order to transfer the aforesaid Winding up Petition to the
NCLT) itself stated that the date of default was 19th August, 2012,
clearly indicating that the Winding up Petition, being beyond three years
of the cause of action, was time-barred.
6. On the other hand, Shri Neeraj Kishan Kaul, learned Senior
Advocate appearing on behalf of the Respondents IL&FS, argued that
the cause of action for the suit and the cause of action for the Winding
up Petition filed were separate and distinct. He argued that it is wellsettled that a winding up petition cannot be filed in order to recover a
debt, but is a proceeding 'in rem', which involves commercial insolvency
of the company sought to be wound up. Therefore, according to the
learned Senior Advocate, the cause of action for filing the Winding up
Petition arose only in 2015/2016, after Shri Jignesh Shah (the Petitioner
before us) was arrested; after attachment of the assets of La-Fin; and
as stated in the Winding up Petition, after La-Fin's assets had fallen
from being worth around INR 1000 crores in 2013, to only being worth
around INR 200 crores in October, 2016. He relied on several judgments
to support this argument. According to him, the suit that was filed by
IL&FS for specific performance of the Letter of Undertaking on 19th
June, 2013 kept alive the debt that was owed to his client and, therefore,
in any event, the Winding up Petition filed after such debt was kept
alive would be in time, notwithstanding that it was filed at a subsequent
period after the suit. According to him, in any event, limitation being a
mixed question of fact and law, at best the matter ought to be remanded
to the NCLT for a determination on this mixed question.
7. Having heard the learned Senior Counsel for the parties, it is
important to first advert to this Court's decision in B.K. Educational
Services Pvt. Ltd. (supra) in which Section 238A of the Code was
referred to, which states as follows:
"238A. Limitation.-The provisions of the Limitation Act, 1963
(36 of 1963) shall, as far as may be, apply to the proceedings or
appeals before the Adjudicating Authority, the National Company
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Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt
Recovery Appellate Tribunal, as the case may be."
8. In paragraph 7 of the said judgment, the Report of the
Insolvency Law Committee of March, 2018 was referred to as follows:
"7. Having heard the learned counsel for both sides, it is
important to first set out the reason for the introduction of Section
238A into the Code. This is to be found in the Report of the
Insolvency Law Committee of March, 2018, as follows:
"28. APPLICATION OF LIMITATION ACT, 1963
28.1 The question of applicability of the Limitation Act, 1963
("Limitation Act") to the Code has been deliberated upon in
several judgments of the NCLT and the NCLAT. The existing
jurisprudence on this subject indicates that if a law is a complete
code, then an express or necessary exclusion of the Limitation
Act should be respected.1 In light of the confusion in this regard,
the Committee deliberated on the issue and unanimously agreed
that the intent of the Code could not have been to give a new
lease of life to debts which are time-barred. It is settled law that
when a debt is barred by time, the right to a remedy is timebarred.2 This requires being read with the definition of 'debt' and
'claim' in the Code. Further, debts in winding up proceedings
cannot be time-barred,3 and there appears to be no rationale to
exclude the extension of this principle of law to the Code.
28.2 Further, non-application of the law on limitation creates the
following problems: first, it re-opens the right of financial and
operational creditors holding time-barred debts under the
Limitation Act to file for CIRP, the trigger for which is default
on a debt above INR one lakh. The purpose of the law of
limitation is "to prevent disturbance or deprivation of what
may have been acquired in equity and justice by long
enjoyment or what may have been lost by a party's own
inaction, negligence or latches"4. Though the Code is not a
debt recovery law, the trigger being 'default in payment of debt'
renders the exclusion of the law of limitation counter-intuitive.
Second, it re-opens the right of claimants (pursuant to issuance
of a public notice) to file time-barred claims with the IRP/RP,
which may potentially be a part of the resolution plan. Such a
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resolution plan restructuring time-barred debts and claims may
not be in compliance with the existing laws for the time being in
force as per section 30(4) of the Code.
28.3 Given that the intent was not to package the Code as a fresh
opportunity for creditors and claimants who did not exercise their
remedy under existing laws within the prescribed limitation period,
the Committee thought it fit to insert a specific section applying
the Limitation Act to the Code. The relevant entry under the
Limitation Act may be on a case to case basis. It was further
noted that the Limitation Act may not apply to applications of
corporate applicants, as these are initiated by the applicant for
its own debts for the purpose of CIRP and are not in the form
of a creditor's remedy."
(emphasis supplied)
9. After referring to Rule 5 of the Companies (Transfer of
Pending Proceedings) Rules, 2016, the Court extracted passages from
the judgment in M.P. Steel Corporation v. CCE (2015) 7 SCC 58
and then concluded:
"20. A perusal of this judgment would show that limitation, being
procedural in nature, would ordinarily be applied retrospectively,
save and except that the new law of limitation cannot revive a
dead remedy. This was said in the context of a new law of
limitation providing for a longer period of limitation than what was
provided earlier. In the present case, these observations are
apposite in view of what has been held by the Appellate Tribunal.
An application that is filed in 2016 or 2017, after the Code has
come into force, cannot suddenly revive a debt which is no longer
due as it is time-barred.
21. In State of Kerala v. V.R. Kalliyanikutty, (1999) 3 SCC
657, ("V.R. Kalliyanikutty"), this Court dealt with whether a timebarred debt can be recovered by resorting to recovery
proceedings under the Kerala Revenue Recovery Act of 1968.
In stating that the said Act cannot extend to recovery of a timebarred debt, this Court stated in paragraph 8,
"8. ...... In every case the exact meaning of the word "due"
will depend upon the context in which that word appears."
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22. It was held in that case that Section 17(3) of the Kerala
Revenue Recovery Act, 1968 made it clear that a person making
payment under protest will have a right to institute a suit for
refund of the whole or part of the sum paid by him under protest.
It was thus held that when the right to file such a suit is expressly
preserved, there is a necessary implication that the shield of
limitation available to a debtor in a suit is also preserved, as a
result of which, a wide interpretation of the expression "amount
due" to include time-barred debts would destroy an important
defence available to a debtor in a suit against him by the creditor,
and may fall foul of Article 14 of the Constitution of India.
23. Another judgment referred to by learned counsel for the
appellants is contained in Union of India v. Uttam Steels Ltd.,
(2015) 13 SCC 209. Here the question was whether Section 11B of the Central Excise Act as amended on 12.05.2000 would
apply to the fact situation in that case. Section 11-B provided a
longer period of limitation by substituting "six months" with "one
year". Since the rebate application was filed within a period of
one year, the respondent contended that they were within time.
This Court held, in paragraph 10, that limitation, being procedural
law, would ordinarily be retrospective in nature. This is however
with one proviso superadded, which is that the claim made under
the amended provision should not itself have been a dead claim
in the sense that it was time-barred before the amending Act
came into force, bringing a larger period of limitation with it. On
the facts of that case, it was held that since the claim for rebate
was made beyond the period of six months but within the extended
period of one year, such extended period would not avail the
respondent in that case.
24. In Allied Motors (P) Ltd. v. CIT, (1997) 3 SCC 472, this
Court took the view that the amendment made to Section 43-B
in the Income Tax Act was retrospective, holding:
"14. ...... As observed by G.P. Singh in his Principles of
Statutory Interpretation, 4th Edn. at p. 291: "It is well settled
that if a statute is curative or merely declaratory of the
previous law retrospective operation is generally intended."
In fact the amendment would not serve its object in such a
situation unless it is construed as retrospective......"
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25. In the present case also, it is clear that the amendment of
Section 238A would not serve its object unless it is construed as
being retrospective, as otherwise, applications seeking to resurrect
time-barred claims would have to be allowed, not being governed
by the law of limitation."
The Court then held:
"38. This case is most apposite. As in the present case, and
as is reflected in the Insolvency Law Committee Report of
March, 2018, the legislature did not contemplate enabling a
creditor who has allowed the period of limitation to set in
to allow such delayed claims through the mechanism of the
Code. The Code cannot be triggered in the year 2017 for a
debt which was time-barred, say, in 1990, as that would lead
to the absurd and extreme consequence of the Code being
triggered by a stale or dead claim, leading to the drastic
consequence of instant removal of the present Board of
Directors of the corporate debtor permanently, and which
may ultimately lead to liquidation and, therefore, corporate
death. This being the case, the expression "debt due" in the
definition sections of the Code would obviously only refer
to debts that are "due and payable" in law, i.e., the debts
that are not time-barred."
Finally, the Court held:
"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 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, Section 5 of the Limitation Act may
be applied to condone the delay in filing such application."
10. This judgment clinches the issue in favour of the Petitioner/
Appellant. With the introduction of Section 238A into the Code, the
provisions of the Limitation Act apply to applications made under the
Code. Winding up petitions filed before the Code came into force are
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now converted into petitions filed under the Code. What has, therefore,
to be decided is whether the Winding up Petition, on the date that it
was filed, is barred by lapse of time. If such petition is found to be
time-barred, then Section 238A of the Code will not give a new lease
of life to such a time-barred petition. On the facts of this case, it is
clear that as the Winding up Petition was filed beyond three years from
August, 2012 which is when, even according to IL&FS, default in
repayment had occurred, it is barred by time.
11. Dr. Singhvi relied upon a number of judgments in which
proceedings under Section 433 of the Companies Act,1956 had been
initiated after suits for recovery had already been filed. These judgments
have held that the existence of such suit cannot be construed as having
either revived a period of limitation or having extended it, insofar as
the winding up proceeding was concerned. Thus, in Hariom Firestock
Limited v. Sunjal Engineering Pvt. Ltd. (1999) 96 Comp Cas 349,
a Single Judge of the Karnataka High Court, in the fact situation of a
suit for recovery being filed prior to a winding up petition being filed,
opined:
"8...To my mind, there is a fallacy in this argument because the
test that is required to be applied for purposes of ascertaining
whether the debt is in existence at a particular point of time is
the simple question as to whether it would have been permissible
to institute a normal recovery proceeding before a civil court in
respect of that debt at that point of time. Applying this test and
de hors that fact that the suit had already been filed, the question
is as to whether it would have been permissible to institute a
recovery proceeding by way of a suit for enforcing that debt in
the year 1995, and the answer to that question has to be in the
negative. That being so, the existence of the suit cannot be
construed as having either revived the period of limitation or
extended it. It only means that those proceedings are pending
but it does not give the party a legal right to institute any other
proceedings on that basis. It is well settled law that the limitation
is extended only in certain limited situations and that the existence
of a suit is not necessarily one of them. In this view of the matter,
the second point will have to be answered in favour of the
respondents and it will have to be held that there was no
enforceable claim in the year 1995, when the present petition was
instituted."
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12. Likewise, a Single Judge of the Patna High Court in Ferro
Alloys Corporation Ltd. v. Rajhans Steel Ltd. (2000) Comp Cas
426 also held:
"12....In my opinion, the contention lacks merit. Simply because
a suit for realisation of the debt of the petitioner-company against
opposite party No. 1 was instituted in the Calcutta High Court
on its original side, such institution of the suit and the pendency
thereof in that court cannot enure for the benefit of the present
winding up proceeding. The debt having become time-barred
when this petition was presented in this court, the same could
not be legally recoverable through this court by resorting to
winding up proceedings because the same cannot legally be
proved under section 520 of the Act. It would have been
altogether a different matter if the petitioner-company
approached this court for winding up of opposite party No. 1 after
obtaining a decree from the Calcutta High Court in Suit No. 1073
of 1987, and the decree remaining unsatisfied, as provided in
clause (b) of sub-section (1) of section 434. Therefore, since the
debt of the petitioner-company has become time-barred and
cannot be legally proved in this court in course of the present
proceedings, winding up of opposite party No. 1 cannot be
ordered due to non-payment of the said debt."
13. In Rameswar Prasad Kejriwal & Sons Ltd. v. M/s.
Garodia Hardware Stores (2002) 108 Comp Cas 187, a money suit
that was filed in 1994 was decreed in 1997, after which a winding up
petition under Section 433 of the Companies Act, 1956 was filed in 2001.
In this fact situation, the learned Single Judge held:
"13. It is an admitted position that the cause of action of the
company arose in 1992. The suit was filed in 1994 and the decree
was obtained in 1997. But on the basis of the said debt which is
said to be merged in the decree, the winding up petition cannot
be filed after the period of limitation that means after a period
of three years.
14. It is not in dispute that in the instant case, the period of
limitation is covered by residuary article namely Article 137 of
Limitation Act. A special Bench of this Court, in the case of Hari
Mohan Dalai v. Parmeshwar Shau, reported in 56 Indian Law
Reports, 61, has made certain observations on how the residuary
article is to be construed.
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15. Construing the provisions of Article 181 the residuary article
under the old Act, Chief Justice Rankin, speaking for the Special
Bench, held that "In Article 181 the legislature makes provisions
not for any definite type of cases but for an unknown number
of cases of all kinds. The provision which it makes specific as
regard the period of limitation, but as regarded the terminus a
quo it is content to state in general language and quite simply
the fundamental principle that, for the purposes of any particular
application, time is to run from the moment at which the applicant
first had the right to make it."
16. This Court goes by the same principle and holds that period
of limitation should be counted from 1992. But assuming it is not
counted from 1992, it has to be counted from 1997. Therefore,
considering the matter from all possible angles, this Court is of
the view that instant winding up petition has become barred on
the date on which it is presented. It cannot be held that in case
of winding up petition, limitation period will be 12 years which
may be the case in matters of execution of a decree.
17. Therefore, this winding up petition is, therefore, dismissed
but in the facts of this case, there will be no order as to costs."
14. In Dr. Dipankar Chakraborty v. Allahabad Bank & Ors.
2017 SCC OnLine Cal 8742, the fact situation was that a suit had been
filed by the petitioner in the City Court at Calcutta for damages against
the Allahabad Bank.