Time lost in SARAFESI proceedings can be excluded from limitation period for IBC initiation
-By Sikha Bansal and Urmil Shah [email@example.com]
The recent ruling of Supreme Court (SC) in Sesh Nath Singh v. Baidyabati Sheoraphuli Co-Operative Bank Ltd., Civil Appeal No. 9198 of 2019 (Ruling) partially addresses the persistent debate on the interplay between the Limitation Act, 1963 (‘Limitation Act’) and the Insolvency and Bankruptcy Code, 2016 (‘IBC’).
The central issue involved in the case was – the financial creditor had initiated SARFAESI proceedings against the corporate debtor years back when the default occurred. Later, while the SARFAESI proceedings were still pending before the High Court (which prima facie viewed that the financial creditor, being a co-operative bank, could not invoke the provisions of SARFAESI), the financial creditor filed for insolvency proceedings under section 7 of IBC against the corporate debtor. Such application was filed after a lapse of 3 years from the default. Hence, the corporate debtor objected the initiation of insolvency on grounds of the application being barred by limitation.
SC, however, read the expression “as far as maybe” as used in section 238A of IBC as a conscious choice of words by the legislature. As such, the words are to be understood in the sense in which they best harmonise with the subject matter and object to the legislation. These words permit a wider, more liberal, contextual, and purposive interpretation by necessary modification. Therefore, section 5, 14, and even section 18 of the Limitation Act would apply to proceedings under IBC.
The article below notes the important observations of SC, along with the authors’ insights.