# SABARMATI GAS LIMITED v. SHAH ALLOYS LIMITED

- **Citation:** [2023] 4 S.C.R. 188
- **Court:** Supreme Court of India
- **Decided:** 2023-01-04
- **Case number:** Civil Appeal No. 1669 of 2020
- **Bench:** Ajay Rastogi, C. T. Ravikumar
- **Source:** https://unisonlegal.in/judgment/supreme-court-of-india/sabarmati-gas-limited-v-shah-alloys-limited-37033
- **Pages:** 32

## Headnote

Insolvency and Bankruptcy Code, 2016 - ss. 6, 8, 9, 62, 238A,
252 - Sick Industrial Companies (Special Provisions) Act, 1985 -
ss. 16, 17, 22, 25 - Limitation Act, 1963 - s.5,14 and Art. 137 -
Insolvency and Bankruptcy (Application to Adjudicating Authority),
Rules 2016 - r. 5, Form no. 3 - Appellant and respondent entered
into a Gas Sales Agreement (GSA) whereunder the appellant was
having the obligation to supply natural gas - Thereafter, the
respondent made default in the payment of the invoices - Respondent
approached BIFR and it was declared a 'sick unit' - Appellant sought
the permission of the BIFR for initiating proceedings against the
respondent for recovery of outstanding dues - Shortly thereafter,
the SICA was repealed w.e.f 01.12.2016 by coming into force of
IBC - Upon BIFR becoming functus officio, appellant issued demand
notice u/s.8 of IBC - Respondent declined the liability to pay the
amount demanded - Appellant filed an application u/s. 9 of the IBC
before NCLT seeking initiation of CIRP in its capacity as operational
creditor of the respondent - The said application was dismissed by
the NCLT on the grounds of being barred by limitation and existence
of a 'pre-existing dispute' between the appellant and the respondent
- The appeal against the decision of NCLT was also dismissed by
NCLAT - Issues before the Supreme Court: Whether in computation
of the period of limitation in regard to an application filed u/s. 9,
IBC the period during which the operational creditor's right to
proceed against or sue the corporate debtor that remain suspended
by virtue of s.22 (1) of the Sick Industrial Companies (Special
Provisions Act, 1985) (SICA) can be excluded, as provided u/s.22
(5) of SICA and Whether the respondent has raised a dispute which
is describable as 'pre-existing dispute' between itself and the
appellant warranting dismissal of application u/s. 9 of the IBC at
the threshold - Held: When the limitation period for initiating CIRP
u/s. 9, IBC is to be reckoned from the date of default, as opposed to
A
B
C
D
E
F
G
H
189
the date of commencement of IBC and the period prescribed therefor,
is three years as provided by s.137 of the Limitation Act, 1963 and
the same would commence from the date of default and is extendable
only by application of s.5 of the Limitation Act, 1963 it is incumbent
on the Adjudicating Authority to consider the claim for condonation
of the delay - In the absence of provisions for exclusion of period
in respect of an application u/s. 9, IBC, despite the combined reading
of s.238A, IBC and the provisions under the Limitation Act what is
legally available to such a party is to assign the same as a sufficient
cause for condoning the delay u/s. 5 of the Limitation Act - As far
as 'pre-existing dispute is concerned', considering the nature of
the dispute of the respondent as referred hereinbefore in respect of
the claim made by the appellant, there is no reason to disagree with
the concurrent findings of the Tribunals that there existed a 'preexisting dispute' between the parties before the receipt of demand
notice u/s. 8, IBC - The dismissal of the application u/s. 9, IBC on
the ground of 'pre-existing dispute' cannot be held to be patently
illegal or perverse.
Dismissing the appeal, the Court
HELD: 1. With respect to Section 7, IBC will proprio vigore
apply to Section 9, IBC. In short, as relates an application under
Section 9, IBC the date of coming into force of IBC, viz,
01.12.2016 would not form the trigger point of limitation and the
period of limitation for an application for initiating of CIRP under
Section 9, IBC would be three years from the date when the right
to apply accrues as provided by Article 137 of the Limitation Act
and further that the right to apply under the IBC would accrue on
the date when default occurs and it is extendable only by
application of Section 5 of the Limitation Act. [Para 23][209-E-F]
2. When the limitation period for initiating CIRP under
Section 9, IBC is

## Text

_Characters 0–39,984 of 72,245. This is a partial read: ask again with offset=39984 for what follows._

A
B
C
D
E
F
G
H
188
SUPREME COURT REPORTS
[2023] 4 S.C.R.
[2023] 4 S.C.R. 188
188
SABARMATI GAS LIMITED
v.
SHAH ALLOYS LIMITED
(Civil Appeal No. 1669 of 2020)
JANUARY 04, 2023
[AJAY RASTOGI AND C. T. RAVIKUMAR, JJ.]
Insolvency and Bankruptcy Code, 2016 - ss. 6, 8, 9, 62, 238A,
252 - Sick Industrial Companies (Special Provisions) Act, 1985 -
ss. 16, 17, 22, 25 - Limitation Act, 1963 - s.5,14 and Art. 137 -
Insolvency and Bankruptcy (Application to Adjudicating Authority),
Rules 2016 - r. 5, Form no. 3 - Appellant and respondent entered
into a Gas Sales Agreement (GSA) whereunder the appellant was
having the obligation to supply natural gas - Thereafter, the
respondent made default in the payment of the invoices - Respondent
approached BIFR and it was declared a 'sick unit' - Appellant sought
the permission of the BIFR for initiating proceedings against the
respondent for recovery of outstanding dues - Shortly thereafter,
the SICA was repealed w.e.f 01.12.2016 by coming into force of
IBC - Upon BIFR becoming functus officio, appellant issued demand
notice u/s.8 of IBC - Respondent declined the liability to pay the
amount demanded - Appellant filed an application u/s. 9 of the IBC
before NCLT seeking initiation of CIRP in its capacity as operational
creditor of the respondent - The said application was dismissed by
the NCLT on the grounds of being barred by limitation and existence
of a 'pre-existing dispute' between the appellant and the respondent
- The appeal against the decision of NCLT was also dismissed by
NCLAT - Issues before the Supreme Court: Whether in computation
of the period of limitation in regard to an application filed u/s. 9,
IBC the period during which the operational creditor's right to
proceed against or sue the corporate debtor that remain suspended
by virtue of s.22 (1) of the Sick Industrial Companies (Special
Provisions Act, 1985) (SICA) can be excluded, as provided u/s.22
(5) of SICA and Whether the respondent has raised a dispute which
is describable as 'pre-existing dispute' between itself and the
appellant warranting dismissal of application u/s. 9 of the IBC at
the threshold - Held: When the limitation period for initiating CIRP
u/s. 9, IBC is to be reckoned from the date of default, as opposed to
A
B
C
D
E
F
G
H
189
the date of commencement of IBC and the period prescribed therefor,
is three years as provided by s.137 of the Limitation Act, 1963 and
the same would commence from the date of default and is extendable
only by application of s.5 of the Limitation Act, 1963 it is incumbent
on the Adjudicating Authority to consider the claim for condonation
of the delay - In the absence of provisions for exclusion of period
in respect of an application u/s. 9, IBC, despite the combined reading
of s.238A, IBC and the provisions under the Limitation Act what is
legally available to such a party is to assign the same as a sufficient
cause for condoning the delay u/s. 5 of the Limitation Act - As far
as 'pre-existing dispute is concerned', considering the nature of
the dispute of the respondent as referred hereinbefore in respect of
the claim made by the appellant, there is no reason to disagree with
the concurrent findings of the Tribunals that there existed a 'preexisting dispute' between the parties before the receipt of demand
notice u/s. 8, IBC - The dismissal of the application u/s. 9, IBC on
the ground of 'pre-existing dispute' cannot be held to be patently
illegal or perverse.
Dismissing the appeal, the Court
HELD: 1. With respect to Section 7, IBC will proprio vigore
apply to Section 9, IBC. In short, as relates an application under
Section 9, IBC the date of coming into force of IBC, viz,
01.12.2016 would not form the trigger point of limitation and the
period of limitation for an application for initiating of CIRP under
Section 9, IBC would be three years from the date when the right
to apply accrues as provided by Article 137 of the Limitation Act
and further that the right to apply under the IBC would accrue on
the date when default occurs and it is extendable only by
application of Section 5 of the Limitation Act. [Para 23][209-E-F]
2. When the limitation period for initiating CIRP under
Section 9, IBC is to be reckoned from the date of default, as
opposed to the date of commencement of IBC and the period
prescribed therefor, is three years as provided by Section 137 of
the Limitation Act, 1963 and the same would commence from
the date of default and is extendable only by application of Section
5 of the Limitation Act, 1963 it is incumbent on the Adjudicating
Authority to consider the claim for condonation of the delay when
SABARMATI GAS LIMITED v. SHAH ALLOYS LIMITED
A
B
C
D
E
F
G
H
190
SUPREME COURT REPORTS
[2023] 4 S.C.R.
once the proceeding concerned is found filed beyond the period
of limitation. As relates Section 5 of the Limitation Act showing
'sufficient cause' is the only criterion for condoning delay.
'Sufficient Cause' is the cause for which a party could not be
blamed. There is a legal bar for initiation of proceedings against
an industrial company by virtue of Section 22 (1), SICA and
obviously, when a party was thus legally disabled from resorting
to legal proceeding for recovering the outstanding dues without
the permission of BIFR and even on application permission
therefor was not given the period of suspension of excludable in
legal proceedings is computing the period of limitation for the
enforcement of such right in terms of Section 22(5), SICA. In the
absence of provisions for exclusion of such period in respect of
an application under Section 9, IBC, despite the combined reading
of Section 238A, IBC and the provisions under the Limitation
Act what is legally available to such a party is to assign the same
as a sufficient cause for condoning the delay under Section 5 of
the Limitation Act. In such eventuality, in accordance with the
factual position obtained in any particular case viz., the period of
delay and the period covered by suspension of right under Section
22 (1), SICA etc., the question of condonation of delay has to be
considered lest it will result in injustice as the party was statutorily
prevented from initiating action against the industrial company
concerned. [Paras 24, 25][209-H; 210-A-F]
3. The existence of a 'pre-existing dispute' should entail
dismissal of an application filed under Section 9 IBC at the
threshold. Therefore, the question is whether the respondent
had raised a dispute describable as a 'pre- existing dispute' so as
to entail dismissal of application of the appellant under Section 9,
IBC. In the contextual situation it is only apposite to be remindful
of the observation in Mobilox Innovations (P) Ltd. that in doing
the act of separating the grain from chaff the Court need not to
be satisfied that the defence is likely to succeed. It is enough
that a dispute exists between the parties and in other words,
what is to be seen is whether there was a plausible contention
requiring investigation for the purpose of adjudication. Taking
note of the nature of the dispute of the respondent as referred
A
B
C
D
E
F
G
H
191
hereinbefore in respect of the claim made by the appellant, there
is no reason to disagree with the concurrent findings of the
Tribunals that there existed a 'pre-existing dispute' between the
parties before the receipt of demand notice under Section 8, IBC.
In other words, the dismissal of the application under Section 9,
IBC on the ground of 'pre-existing dispute' cannot be held to be
patently illegal or perverse. [Paras 32, 38][213-A-B; 217-E-G]
Mobilox Innovations (P) Ltd. v. Kirusa Software (P) Ltd.
(2018) 1 SCC 353; B.K. Educational Services Private
Limited v. Parag Gupta and Associates (2019) 11 SCC
633 : [2018] 12 SCR 794; Babulal Vardharji Gurjar v.
Veer Gurjar Aluminium Industries Private Limited and
Anr. (2020) 15 SCC 1; Macquarie Bank Limited v. Shilpi
Cable Technologies Limited (2018) 2 SCC 674 : [2017]
13 SCR 751 - relied on.
Paramjeet Singh Patheja v. ICDS Ltd. (2006) 13 SCC
322 : [2006] 8 Suppl. SCR 178; Kailash Nath Agarwal
and Ors. v. Pradeshiya Industrial & Investment
Corporation of U.P. Ltd. and Anr. (2003) 4 SCC 305 :
[2003] 1 SCR 1159; KSL & Industries Ltd. v. M/s.
Arihant Threads Ltd. (2015) 1 SCC 166 : [2014] 14
SCR 1097; Innoventive Industries Ltd. v. ICICI Bank
and Anr. (2018) 1 SCC 407 : [2017] 8 SCR 33 -
referred to.
Case Law Reference
[2006] 8 Suppl. SCR 178
referred to
Para 6
[2003] 1 SCR 1159
referred to
Para 11
[2014] 14 SCR 1097
referred to
Para 12
[2018] 12 SCR 794
relied on
Para 20
(2020) 15 SCC 1
referred to
Para 21
[2017] 13 SCR 751
relied on
Para 27
[2017] 8 SCR 33
referred to
Para 31
SABARMATI GAS LIMITED v. SHAH ALLOYS LIMITED
A
B
C
D
E
F
G
H
192
SUPREME COURT REPORTS
[2023] 4 S.C.R.
CIVIL APPELLATE JURISDICTION: Civil Appeal No. 1669
of 2020.
From the Judgment and Order dated 19.12.2019 of the National
Company Law Appellate Tribunal, New Delhi in Company Appeal (AT)
(Insolvency) No. 820 of 2019.
Shyam Divan, Sr. Adv., Piyush Joshi, Senthil Jagadeesan, Ms.
Sumiti Yadava, Ms. Sonakshi Malhan, Sajal Jain, Ms. Pemya Raj, Advs.
for the Appellant.
Gurukrishna Kumar, Sr. Adv., Ms. Gauri Rasgotra, Sumit Attri,
Ms. Ritu Anand Vishwakarma, Satatya Anand, Ms. Ena Kapur, M/s.
Cyril Amarchand Mangaldas, Advs. for the Respondent.
The Judgment of the Court was delivered by
C. T. RAVIKUMAR, J.
1. This appeal under Section 62 of the Insolvency and Bankruptcy
Code, 2016 (IBC) is preferred by Sabarmati Gas Limited (hereinafter
referred to as the appellant) against the final judgment dated 19.12.2019
of the National Company Law Appellate Tribunal (NCLAT) in Company
Appeal (AT) (Insolvency) No. 820 of 2019. As per the same the NCLAT
dismissed the appeal preferred by the appellant against order dated
27.06.2019 in CP (IB) No. 516/9/NCLT/AHM/2018 of the National
Company Law Tribunal, Ahmedabad Bench, (NCLT) dismissing the
application filed under Section 9 of the IBC, in its capacity as operational
creditor of 'Shah Alloys Limited' (hereinafter referred to as the
'respondent').
2. In the captioned appeal mainly, twin questions of law call for
consideration id est :-
(i)
Whether in computation of the period of limitation in
regard to an application filed under Section 9, IBC the
period during which the operational creditor's right to
proceed against or sue the corporate debtor that remain
suspended by virtue of Section 22 (1) of the Sick
Industrial Companies (Special Provisions Act, 1985)
(SICA) can be excluded, as provided under Section 22
(5) of SICA?
A
B
C
D
E
F
G
H
193
(ii)
Whether the respondent has raised a dispute which is
describable as 'pre-existing dispute' between itself and
the appellant warranting dismissal of application under
Section 9 of the IBC at the threshold?
While considering the stated twin questions certain other allied
questions of relevance may also crop up for consideration, which we
will state and consider at the appropriate time. The respondent -corporate
debtor was the petitioner in Case No. 13 of 2010 before the Board for
Industrial and Financial Re-construction (BIFR) and the appellant herein
was the applicant in Miscellaneous Application No. 432 of 2013 in Case
No. 13 of 2010.
3. Heard learned Senior Counsel for the appellant Shri Shyam
Divan and Mr. S. Guru Krishna Kumar, learned Senior Counsel for the
respondent.
4. Consideration of the questions, mentioned above and to be
mentioned hereinafter, is called for, in the following factual background:
The respondent, for its manufacturing needs, required commercial
supply of natural gas. To facilitate the same on 30.05.2008 the appellant
and the respondent entered into a Gas Sales Agreement (GSA) whereby
and whereunder the appellant was having the obligation to supply natural
gas conforming to the specifications laid down in Annexure-2, appended
to GSA and it also forms part of the contract. Going by clause 11.2 of
GSA, notwithstanding any dispute in relation to any amount invoiced, the
respondent could not withhold payment in accordance with the GSA.
According to the appellant, the respondent defaulted payment of invoices
inasmuch as it made only partial irregular payments from November,
2011. Meanwhile, the respondent approached BIFR to get it declared as
a 'sick unit' and for recommendation of a plan for its rehabilitation, in
terms of the provisions under SICA. The reference was admitted by
BIFR as case No. 13 of 2010 and as per order dated 31.08.2010 the
respondent was declared as a 'sick company'. It is the case of the
appellant that by virtue of Section 22 of SICA there was a moratorium
on the respondent and therefore, it could not have proceeded against the
respondent for outstanding dues, thenceforth, without obtaining the
permission of the BIFR. On 07.08.2012 the appellant stopped the gas
supply and then, intervened in the pending proceedings before the BIFR
viz., 13 of 2010. On 08.03.2013, as per Miscellaneous Application No.
SABARMATI GAS LIMITED v. SHAH ALLOYS LIMITED
[C. T. RAVIKUMAR, J.]
A
B
C
D
E
F
G
H
194
SUPREME COURT REPORTS
[2023] 4 S.C.R.
432 of 2013 the appellant sought permission of the BIFR for initiating
proceedings against the respondent for recovery of an outstanding dues
of Rs. 4,71,56,095/-. On 09.09.2015, the BIFR passed an order thereon.
Shortly thereafter, to be precise, w.e.f. 01.12.2016, SICA was repealed.
5. According to the appellant, BIFR became functus officio and
all proceedings pending before it, including the case of the respondent,
were abated and several sections of IBC, including Sections 8 and 9,
came into effect on 01.12.2016. Hence, after the enactment of IBC, the
appellant issued a demand notice on 01.04.2017, under Section 8 of the
IBC read with Rule 5 of the Insolvency and Bankruptcy (Application to
Adjudicating Authority), Rules 2016, in Form No. 3 demanding payment
of operational debt of Rs. 4,71,56,094.76/-. On 10.04.2017, the respondent
gave a reply to the aforesaid demand notice stating that there was shortfall
in supply of natural gas and also a huge loss due to the disconnection of
gas supply. Raising such contentions, the respondent declined the liability
to pay the amount demanded. Thereafter, the appellant filed an application
under Section 9 of the IBC before NCLT, Ahmedabad seeking initiation
of Corporate Insolvency Resolution Process (CIRP) in its capacity as
Operational Creditor of the respondent. The said application was dismissed
by the NCLT as per order dated 27.06.2019 on the grounds of being
barred by limitation and existence of a 'pre-existing dispute' between
the appellant and the respondent. It is the appeal challenging the same
before the NCLAT that ultimately culminated in the impugned judgment.
6. We will firstly consider the first question of law arising on
account of dismissal of the appellant's application under Section 9, IBC
on the ground of being barred by limitation. In the light of the aforesaid
factual backdrop and contentions the appellant would contend that the
NCLT and NCLAT had failed to look into and appreciate the cumulative
effect of sub-sections (1) and (5) of Section 22 of SICA while dismissing
the application under Section 9, IBC as barred by limitation. In elaboration
of the contention, it is submitted that the NCLT and NCLAT had failed
to appreciate that the respondent was admitted as a 'sick company' by
the BIFR as per its order dated 31.08.2010 and hence, by virtue of subsection (5) of Section 22, SICA the period of suspension under SICA
viz., from 31.08.2010 to 01.12.2016, ought to have been excluded while
calculating the period of limitation. According to the appellant, since the
application under Section 9, IBC was filed on 20.08.2018 granting the
benefit of such exclusion would have, certainly, put the application well
A
B
C
D
E
F
G
H
195
within the limitation period of 3 years as provided under Article 137 of
the Limitation Act. The learned counsel for the appellant placed reliance
on the decision in Paramjeet Singh Patheja v. ICDS Ltd.1, particularly
paragraph 43 (vii) therein, to support the contention that there was a
statutory bar for laying or continuing with any legal proceeding for
realisation of a right vested by law on the appellant.
7. Resisting the contentions of the appellant and supporting the
impugned judgment the respondent would contend that both NCLT and
NCLAT had rightly appreciated the factual positions thereon obtained in
the case on hand and appliedthe provisions correctly, to arrive at the
finding that the application filed by the appellant under Section 9, IBC
was barred by limitation. According to the respondent there is discrepancy
between the stand of the appellant in the Section 9 application and the
Demand Notice under Section 8, of the IBC as relates the quantum of
alleged outstanding dues. It is also contended that such a discrepancy
also exists with respect to the date of cause of action inasmuch as going
by Section 9 application the alleged debt fell due on and from November,
2011 and as per the Demand Notice the so-called debt fell due on and
from 9th July, 2012 and in either case, Section 9 application was barred
by limitation as it was filed only in the year 2018. To wit, beyond 3 years
from the alleged default. The benefit of exclusion of period under Section
22(5) of the SICA is not available to the appellant for computing the
period of limitation in respect of an application under Section 9, IBC, it is
further contended. According to the respondent, Section 22 (1), SICA
did not accord a blanket protection against running of cause of action
and it is intended to suspend legal proceedings of coercive nature so as
to secure assets of an enterprise. In other words, the contention is that
filing application for recovery was permissible and Section 22 (1), SICA
did not forbid the same and it interdicted only execution or distress or the
like against the properties of the industrial company concerned in the
contingencies contemplated thereof.
8. When Sections 8 and 9, IBC came into force only with effect
from 01.12.2016, the question of initiation of the CIRP by filing an
application under Section 9 was possible only from 01.12.2016. But the
question is whether any party, which falls under the expression
'Operational Creditor' under the IBC claims to have operational debt
1 (2006) 13 SCC 322
SABARMATI GAS LIMITED v. SHAH ALLOYS LIMITED
[C. T. RAVIKUMAR, J.]
A
B
C
D
E
F
G
H
196
SUPREME COURT REPORTS
[2023] 4 S.C.R.
due from an industrial company and the cause of action for recovery of
the same had accrued much earlier than 01.12.2016, but prevented from
enforcing the right against such company in view of statutory prohibition
under Section 22 (1), SICA, could initiate CIRP despite the passage of
three years since the cause of action claiming the protection of exclusion
of the period of suspension by virtue of Section 22 (5), SICA?
8.1 In that context it is only apt to refer to the afore-mentioned
relevant provisions under SICA. Section 22(1), SICA was as follows:
"22. Suspension of legal proceedings, contracts, etc. - (1)
Where in respect of an industrial company, an inquiry under
section 16 is pending or any scheme referred to under section
17 is under preparation or consideration or a sanctioned
scheme is under implementation or where an appeal under
section 25 relating to an industrial company is pending, then,
notwithstanding anything contained in the Companies Act,
1956 (1 of 1956) or any other law or the memorandum and
articles of association of the industrial company or any other
instrument having effect under the said Act or other law, no
proceedings for the winding up of the industrial company or
for execution, distress or the like against any of the properties
of the industrial company or for the appointment of a receiver
in respect thereof [and no suit for the recovery of money or
for the enforcement of any security against the industrial
company or of any guarantee in respect of any loans or
advance granted to the industrial company] shall lie or be
proceeded with further, except with the consent of the Board
or, as the case may be, the Appellate Authority."
8.2 Section 22(5), SICA, relied on by the appellant for seeking
exclusion of the period from 31.08.2010 to 01.12.2016 while computing
the period of limitation, was as hereunder: -
"22. Suspension of legal proceedings, contracts, etc. -
(1)...
(2)...
(3)...
(4)...
A
B
C
D
E
F
G
H
197
(5) In computing the period of limitation for the enforcement
of any right, privilege, obligation or liability, the period during
which it or the remedy for the enforcement thereof remains
suspended under this section shall be excluded."
9. Thus, Section 22 (1), SICA as extracted above, would make it
clear that there was a statutory bar to take to any proceeding for
realisation of a right referred to in the said Section against an industrial
company when once an enquiry under Section 16, SICA is pending
against it or any scheme referred to under Section 17 thereof is under
preparation or consideration or a sanctioned scheme is under
implementation or where an appeal under Section 25 relating to an
industrial company is pending, except with the consent of the Board or
the Appellate Authority, as the case may be. As noticed earlier, SICA
came to be repealed and IBC came into force (Sections 7 to 9 and
various other Sections), on the same day viz, on 01.12.2016.
10. A two-Judge Bench decision of this Court in Paramjeet
Singh Patheja's case (supra), more particularly, paragraph 43 (vii),
is relied on by the appellant to support its claim for exclusion of the
period from 31.08.2010 to 01.12.2016 while computing the period of
limitation for filing applicants under Section 9, IBC. It, in so far as
relevant reads thus: -
"43. For the foregoing discussions we hold:
(i)
(ii)
(iii)
(iv)
(v)
(vi)
.........
(vii) It is a well-established rule that a provision must be
construed in a manner which would give effect to its purpose
and to cure the mischief in the light of which it was enacted.
The object of Section 22, in protecting guarantors from legal
proceedings pending a reference to BIFR of the principal
SABARMATI GAS LIMITED v. SHAH ALLOYS LIMITED
[C. T. RAVIKUMAR, J.]
A
B
C
D
E
F
G
H
198
SUPREME COURT REPORTS
[2023] 4 S.C.R.
debtor, is to ensure that a scheme for rehabilitation would not
be defeated by isolated proceedings adopted against the
guarantors of a sick company. To achieve that purpose,it is
imperative that the expression "suit" in Section 22 be given
its plain meaning, namely, any proceedings adopted for
realization of a right vested in a party by law. This would
clearly include arbitration proceedings."
(Emphasis added)
11. In the light of the position settled thus, in Paramjeet Singh
Patheja's Case (supra), it is relevant to refer to an earlier two-Judge
Bench decision of this court in Kailash Nath Agarwal and Ors. v.
Pradeshiya Industrial & Investment Corporation of U.P. Ltd. and
Anr.2 That was also a case, involving consideration of the question as to
whether Section 22, SICA, afford protection to guarantors of sick
company or only to the sick company. It is relevant to note in this context
that the decision in Kailash Nath Agarwal's Case (supra)was not
brought to the notice of the later bench while deciding Paramjeet Singh
Patheja's Case (supra). In other words, the latter case was decided
per incuriam. In Kailash Nath Agarwal's Case, after considering
contentions akin to those raised in Paramjeet Singh Patheja's Case,
this court held that the words "proceedings" and again "suit" had to be
construed differently as carrying different meanings, since, they had
been raised to denote different things. It was concluded that Section 22
(1), SICA only prohibits recovery against the industrial company and
there would be no protection offered to guarantors against the recovery
proceedings.
12. The above conflicting decisions need not detain us from
considering the issue further in the light of a subsequent three-Judge
Bench decision of this court in KSL & Industries Ltd. Vs. M/s. Arihant
Threads Ltd3. The three-judge bench, after noting the contentions raised
before and the findings of the two-judge bench in Kailash Nath
Agarwal's case (supra), found that it did not deal with the question
regarding the scope of protection afforded to the industrial company
concerned, under Section 22 (1) of SICA. Having observed thus, the
three-Judge Bench went on to consider the said question. In that regard,
paragraphs 32, 33 and 53 are relevant and reads thus:
2 (2003) 4 SCC 305
3 (2015) 1 SCC 166
A
B
C
D
E
F
G
H
199
"32. As observed earlier, Sub-section (1) of Section 22 may
be divided into two parts. In one part, it provides that "no
proceedings'' be instituted for the winding up of the industrial
company or for execution, distress or the like against any of
the properties of such industrial company, and in the second
part it provides that "no suit" for the recovery of money or
for the enforcement of any security against the industrial
company or of any guarantee in respect of any loans or
advances granted to the industrial company, "shall lie or be
proceeded with further, except with the consent of the Board
or, as the case may be, the Appellate Authority."
33. Undoubtedly, the present proceedings viz. "application
for recovery" cannot specifically be described as proceedings
for execution, distress or the like against any of the properties,
but it is certainly a proceeding which results in and in fact
had resulted in the execution and distress against the property
of the Company and is therefore liable to be construed as a
proceeding for the execution, distress or the like against any
of the properties of the industrial company. We are of the
view that such a construction would be within the intendment
of Parliament wherever the proceedings for recovery of a debt
which has been secured by a mortgage or pledge of the
property of the borrower are instituted. Surely, there is no
purpose in construing that Parliament intended that such an
application for recovery by summary procedure should lie or
be proceeded with, but only its execution be interdicted or
inhibited especially. In this context, it may be remembered that
the proceedings by way of an application for recovery
according to a summary procedure as provided under the
RDDB Act are not referred to in Section 22 simply because
the RDDB Act had not then been enacted.
53. Moreover, we have found nothing contrary in the intention
of the SICA to exclude a recovery application from the purview
of Section 22, indeed there could be no reason for such
exclusion since the purpose of the provision is to protect the
properties of a sick company, so that they may be dealt with
in the best possible way for the purpose of its revival by the
BIFR. In State of Punjab v. The Okara Grain Buyers Syndicate
SABARMATI GAS LIMITED v. SHAH ALLOYS LIMITED
[C. T. RAVIKUMAR, J.]
A
B
C
D
E
F
G
H
200
SUPREME COURT REPORTS
[2023] 4 S.C.R.
Ltd. MANU/SC/0023/1963: AIR 1964 SC 669, the Court
articulated the importance of preserving the beneficent
purpose of the statute and observed:
14. ... We shall therefore proceed to examine the provisions
of the Act on the footing that the test for determining
whether the Government is bound by a statute is whether
it is expressly named in the provision which it is contended
binds it, or whether it "is manifest that from the terms of
the statute, that it was the intention of the legislature that it
shall be bound", and that the intention to bind would be
clearly made out if the beneficent purpose of the statute
would be wholly frustrated unless the Government were
bound."
13. Thus, it is obvious that the three-Judge Bench in KSL &
Industries Ltd. (supra) considered the question whether a recovery
application under the Recovery of Debts Due to Banks and Financial
Institutions Act, 1963 (RDDB Act) would lie or be proceeded with against
a sick company in view of the Bar contained in Section 22 (1) of SICA.
Evidently, even after finding that an 'application for recovery' under
RDDB Act could not specifically be described as proceedings for
execution, distress or the like against any of the properties, it was held
that it is certainly a proceeding which may result in the execution and
distress against the property of the company and is therefore, liable to
be construed as a proceeding for the execution, distress or the like against
any of the properties of the industrial company. Accordingly, it was held
that such a construction would be within the intendment of the Parliament.
Moreover, it was held therein that there would be no purpose in construing
the Parliament intended that such an application for recovery by summary
procedure should lie or be proceeded with, but only its execution be
interdicted or inhibited. That apart the three-Judge Bench found nothing
contrary in the intention of the SICA to exclude a recovery application
from the purview of a Section 22 thereof, taking note of the fact that the
purpose of the said provision is to protect the properties of sick company,
so that they may be dealt with in the best possible way for the purpose
of its revival by BIFR.
14. In view of the provisions under Section 22 (1) of SICA and
the decisions in Paramjeet Singh case (Supra) and in KSL & Industries
Limited (supra), it is worthwhile to note that in the case on hand it was
A
B
C
D
E
F
G
H
201
the industrial company (respondent herein) that approached the BIFR
under the provisions of SICA and got it declared as 'sick company' by
filing Case No. 13 of 2010; that it is thereafter that the appellant filed
Miscellaneous Application No. 432/2013 thereon praying, inter-alia, to
permit it under Section 22 of SICA to approach a Civil Court of appropriate
jurisdiction for recovery of the above-mentioned dues along with interest;
that the said application was disposed of only on 09.09.2015, as per
Annexure-A40 proceedings, that too, only with a direction to the
respondent company to incorporate the dues of the applicant in the
DRS and that as per Annexure-A40, Case No.13 of 2010 and M.A.
No. 292/2014 filed thereon, were then, posted for hearing. In short,
Case No. 13 of 2010 was pending before the BIFR when SICA was
repealed w.e.f. 01.12.2016 and Sections 8 and 9, IBC took its effect
from 01.12.12016. Thus, obviously, proceedings under SICA were then
pending before the BIFR when the default from the part of the
respondent allegedly occurred and by virtue of Section 22 (1), SICA
and the decisions referred above, the appellant could not have, then,
resorted to any legal proceedings for enforcing any right which may
result in recovery from the properties of the respondent company. For
the same reasons, the contention of the respondent that pending the
proceedings before the BIFR the appellant could have resorted to
arbitration proceedings also has to fail.
15. Now, we will have to consider the purported intent of Section
22 (5), SICA. The intention appears to be to protect the interest of such
a party who was prevented from lawfully enforcing the right to seek for
recovery of dues during the operative period of the bar under Section 22
(1), SICA, if it is otherwise available even after the conclusion of
proceedings before the BIFR, to the extent specifically mentioned therein.
According to us, any other understanding of the provisions under Section
22 (5) would be wholly pointless and purposeless. When the appellant
being a party to BIFR in the sense, on intervention obtained an order to
the respondent company to incorporate its dues in the Draft Rehabilitation
Scheme (DRS) in an application seeking permission to effect recovery
of the dues and such a stage had not reached till 01.12.2016, whether
there would be any justification to hold that on the repeal of SICA it
could not claim the benefit flowing from the provisions under Section 22
(5) of SICA, subject to the provisions under the relevant laws governing
the appropriate forum chosen?
SABARMATI GAS LIMITED v. SHAH ALLOYS LIMITED
[C. T. RAVIKUMAR, J.]
A
B
C
D
E
F
G
H
202
SUPREME COURT REPORTS
[2023] 4 S.C.R.
16. In the contextual situation, it is apropos to refer to Section 252
of IBC which reads thus: -
"252. The Sick Industrial Companies (Special Provisions)
Repeal Act, 2003 shall be amended in the manner specified
in the Eighth Schedule."
16.1 The Eighth Schedule would reveal the nature and manner of
amendment specified thereunder as substitution to sub-clause (b) of
Section 4, of SICA Repeal Act, 2003 w.e.f. 01.12.2016, as hereunder:
"(b) On such date as may be notified by the Central
Government in this behalf, any appeal preferred to the
Appellate Authority or any reference made or inquiry pending
to or before the Board or any proceeding of whatever nature
pending before the Appellate Authority or the Board under
the Sick Industrial Companies (Special Provisions) Act, 1985
(1 of 1986) shall stand abated: Provided that a company in
respect of which such appeal or reference or inquiry stands
abated under this clause may make reference to the National
Company Law Tribunal under the Insolvency and Bankruptcy
Code, 2016 within one hundred and eighty days from the
commencement of the Insolvency and Bankruptcy Code, 2016
in accordance with the provisions of the Insolvency and
Bankruptcy Code, 2016:
 Provided further that no fees shall be payable for making
such reference under Insolvency and Bankruptcy Code, 2016
by a company whose appeal or reference or inquiry stands
abated under this clause.".
(Emphasis added)
17. A perusal of the substituted sub-clause (b), as extracted above
would reveal that reference made or inquiry pending or any proceeding
of whatever nature, before the Board under SICA would stand abated
upon its notification by the Central Government. The first proviso to
sub-clause (b) only makes reference to the time limit applicable to the
company in respect of which the appeal or reference or enquiry or any
such proceeding thus stood abated under the said sub-clause. Going by
the said proviso, such a company may make reference to NCLT under
IBC within 180 days from the commencement of IBC and in accordance
A
B
C
D
E
F
G
H
203
with the provisions thereof. Subsequently, the stated amendment was
notified by the Central Government under S.O. 3569 (E) dated 25.11.2016.
It is thus clear that on account of repeal of SICA under Repeal Act (1 of
2003) w.e.f. 01.12.2016, any pending proceeding or enquiry under SICA,
initiated by an industrial company would get abated and the prescription
of such period of 180 days became applicable only to such a company. A
scanning of the stated sub-clause (b) and the provisos would not reveal
or indicate prescription of any such specific time limit as regards the
opposite parties in the abated reference, inquiry or proceeding for
proceeding with their available remedy under IBC. In the said
circumstances, if such an opposite party falls within the expression
'operational creditor', under IBC, it could only be taken that it should be
governed by the provisions under the IBC in regard to the period of
limitation for approaching the Adjudicating Authority. In this context, it is
also relevant to note that as relates the company whose reference or
inquiry or any proceeding got abated, as mentioned, it need not pay any
fee for making reference under IBC, in terms of the second proviso to
the substituted sub-clause (b) of Section 4 of the SICA Repeal Act.
Needless to say, that this exemption is not available to other parties to
the abated proceedings, or reference or inquiry concerned.
18. Section 6, IBC provides that where any corporate debtor
commits a default, a financial creditor, an operational creditor or the
corporate debtor itself may initiate CIRP in respect of such corporate
debtor in the manner provided under Chapter II of IBC. Section 8, which
falls under Chapter II, deals with insolvency resolution by operational
creditor. It provides that an operational creditor may, on the occurrence
of default, deliver a demand notice of unpaid of operational debt or copy
of an invoice demanding payment of the amount involved in the default
to the corporate debtor in such form and manner as may be prescribed.
It is apposite to note that a seemingly printing error had occurred in
Section 8 (1), IBC inasmuch as instead of 'a demand notice of unpaid
operational debt' it is printed as 'a demand notice of unpaid operational
debtor.' Evidently, this must have occurred as in the Gazette Notification
also the word 'debtor' is following the words 'unpaid operational'. The
word 'debtor' used therein has to be split into 'debt' and 'or' so as to
serve the purpose and to give the intended meaning to Section 8 (1) and
this view would get support from sub-section (2) of Section 8 itself. Subsection 2 of Section 8, IBC in so far as it is relevant, reads thus: -
SABARMATI GAS LIMITED v. SHAH ALLOYS LIMITED
[C. T. RAVIKUMAR, J.]
A
B
C
D
E
F
G
H
204
SUPREME COURT REPORTS
[2023] 4 S.C.R.
"8. (1) ....
(2) The corporate debtor shall, within a period of ten days of
the receipt of the demand notice or copy of the invoice
mentioned in sub-section (1) bring to the notice of the
operational creditor-
(a) existence of a dispute, if any, or record of the pendency
of the suit or arbitration proceedings filed before the receipt
of such notice or invoice in relation to such dispute;
(b) the payment of unpaid operational debt-
(Underline supplied)
19. So also, the said position is evident from Rule 5 of the Insolvency
and Bankruptcy (Application to Adjudicating Authority) Rules, 2016 (for
short 'the Rules'). Going by the instruction in Form 3, in which a Demand
Notice is to be delivered to the corporate debtor under 'the Rules', the
said from has to be served on the corporate debtor, ten days in advance
of filing an application under Section 9 of the Code. This instruction can
only be construed that it shall be served on the corporate debtor not less
than ten days in advance of filing an application under Section 9 of the
Code for the simple reason that the period of limitation for filing an
application under Section 9, IBC is governed by Section 238 A, IBC and
therefore, it could not be construed that Section 9 application should
invariably be filed on the eleventh day of service of advance demand
notice in Form 3. Section 238 A, IBC, dealing with period of limitation,
has come into force w.e.f. 06.06.2018 and it reads thus: -
"238A. Limitation. - The provisions of the Limitation Act, 1963
(36 of 1963) shall, as far as may be, apply to the proceedings
or appeals before the Adjudicating Authority, the National
Company Law Appellate Tribunal, the Debt Recovery Tribunal
or the Debt Recovery Appellate Tribunal, as the case may be."
20. Obviously, Section 238A, IBC makes the provisions of the
Limitation Act, 1963 applicable to computation of the period of limitation
in regard to proceedings before the Adjudicating Authority and the other
forums. This position is made explicitly clear in the decision of this Court
in B.K. Educational Services Private Limited v. Parag Gupta and
Associates4 at paragraphs 43 and 48 and they read thus: -
4 (2019) 11 SCC 633
A
B
C
D
E
F
G
H
205
"43. It will be seen from a reading of Section 8 (2) (a) that the
corporate debtor shall, within a period of 10 days of the
receipt of the demand notice, bring to the notice of the
operational creditor the existence of a "dispute". We have
seen that "dispute" as defined in Section 5 (6) includes a suit
or arbitration proceeding relating to certain matters. Again,
under Section 8 (2) (a), the corporate debtor may, in the
alternative, disclose the pendency of a suit or arbitration
proceedings filed before the receipt of the demand notice. It
is clear therefore, that at least in the case of an operational
creditor, "default" must be non-payment of amounts that have
become due and payable in law.