The Supreme Court of India recently clarified the applicability of the Limitation Act 1963 (the Act) and the Insolvency and Bankruptcy Code 2016 (IBC).(1)
On 20 February 2015, New Delhi Municipal Council (NDMC) entered into an agreement with Minosha India Limited (MIL). Owing to the purported failure of MIL to perform its obligations under the agreement, NDMC terminated the agreement. On 7 June 2016, MIL initiated arbitration proceedings under the Arbitration and Conciliation Act 1996 (the A&C Act) by issuing a notice of commencement of arbitration.
On 14 May 2018, before the arbitration proceedings could commence, MIL was admitted into insolvency under the IBC by the National Company Law Tribunal (the Tribunal). On 28 November 2019, the Tribunal approved a resolution plan to resolve the insolvency of MIL. On the same date, MIL filed an application to appoint an arbitrator under the A&C Act before the Delhi High Court, which was allowed on 14 December 2020. In the proceedings before the Delhi High Court, NDMC did not raise the issue of limitation under the Act.
NDMC raised an argument of limitation before the Supreme Court of India. This was based on the fact that the notice of commencement of arbitration was dated 7 June 2016 and, as such, the application for appointment of an arbitrator under the A&C Act ought to have been filed within three years from the date of the notice of commencement – that is, on or before 6 June 2019 – when in fact the application was filed only on 28 November 2019. NDMC argued that in light of the language of the provisions of the Act, even if limitation is not raised by a party, the Court is bound to consider the issue of limitation. NDMC also contended that the language of section 60(6) of the IBC ought not to protect the action of MIL.
MIL, on the other hand, argued that the period of moratorium contemplated under section 14 of the IBC should be understood as a "calm period" for the entity that is undergoing insolvency and, as such, section 60(6) would save the period of limitation under the Act.
The Court had to consider the interpretation of:
- section 3 of the Act (ie, the obligation to consider the issue of limitation, even if not raised);
- section 14 of the IBC (ie, the period of moratorium);
- section 25(2)(b) of the IBC (ie, the obligations of the resolution professional to represent on behalf of the company in insolvency against third parties); and
- section 60(6) of the IBC (ie, during the period of moratorium, the applicability of the Act would be suspended).
The Court observed that when there was a potential conflict between two provisions of any legislation, a manner of interpretation that would make all provisions sustainable ought to be preferred. While section 25(2)(b) of the IBC imposed an obligation on the resolution professional to conduct proceedings on behalf of the company in insolvency, section 60(6) of the IBC clearly suspended the continuation of limitation under the Act for as long as a company in insolvency was under the moratorium imposed under section 14 of the IBC. With that being so, and while relying on various judgments of the Supreme Court of India and the House of Lords, the Court was of the view that section 60(6) would have to be read in its plain meaning and not as contradicting section 25(2)(b).
The Court emphasised that the period of insolvency for a company under the IBC was a period of turbulence in which the management and control of a company transfers from an interim resolution professional to a resolution professional all the while being under control of a committee of creditors and at all times to the exclusion of the management of the company in insolvency. The committee of creditors, who are at the helm of the affairs of the company in insolvency, prefer to resolve the insolvency of the company rather than initiate litigations on behalf of the company in insolvency. Therefore, the wisdom of Parliament in looking to exclude the period of limitation under the Act for as long as a company is in insolvency under the IBC cannot be faulted with or interpreted in a manner that would render the provision as meaningless.
This judgment is welcome since it solidifies the position of law that the period of limitation, which otherwise never halts, is expressly expected to halt during a period of insolvency resolution under the IBC. A company, once out of insolvency, would be confronted with the continuation of the period of limitation. This judgment is in line with the continued interpretation of the Supreme Court of India to interpret the IBC in a manner that makes the legislation efficient and effective overall.
Endnotes
(1) New Delhi Municipal Council v Minosha India Limited, 27 April 2022, Civil Appeal No. 3470 of 2022.
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Facts