Sesh Nath Singh and another v. Baidyabati Sheoraphuli Cooperative Bank and another

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CITATION	LL 2021 SC 177
DATE OF JUDGMENT	March 22, 2021
COURT	Supreme court of India
APPELLANT	Sesh Nath Singh and another
RESPONDENT	Baidyabati Sheoraphuli Cooperative Bank and another
BENCH	Hemant gupta, indira benarjee

INTRODUCTION

The Hon. Supreme Court recently addressed the questions surrounding the condonation of delay under the Limitation Act 1963 in the case “Sesh Nath Singh and others v. Baidyabati Sheoraphuli Cooperative Bank and another” (hereinafter referred to as the “Sesh Nath case”) (LL 2021 SC 177), while exercising appellate jurisdiction. This action was taken because Section 7 of the Insolvency and Bankruptcy Code 2016 (hence referred to as the “Code” in this article) applies to the insolvency proceedings. In order to research and analyze this case within the context of the previously mentioned forgiveness of delay-related difficulties as they relate to insolvency procedures under the Code, this essay looks at the underlying law.

FACTS

When the Appellant (the Corporate Debtor) failed to return the debt that the Respondent (the Financial Creditor) had provided, the parties to the “Sesh Nath case” engaged in a judicial battle. The Financial Creditor approved the loan on February 15, 2012, as a cash credit facility. As a result of the appellant’s repayment default, the account was designated as a Non-Performing Asset (NPA) on March 31, 2012. Following this, on January 18, 2014, a notice under Section 13(2) of the Securitization and Reconstruction of Financial Assets and Enforcement of Security Interest Act, 2002 (also known as the SARFAESI Act) was sent to the corporate debtor, warning them that failure to repay the entire loan amount within sixty days may result in further action under the Act.

On December 13, 2014, the Respondent issued a second notice under Section 13(4)(a) of the SARFAESI Act, asking the peaceful possession of the secured assets from the Debtor, in response to the Corporate Debtor’s noncompliance with the Notice under an earlier notification under Section 13 (2).
On the other hand, on December 19, 2014, the Corporate Debtor appealed the notices to the Hon’ble Calcutta High Court. On July 24, 2017, the High Court issued an order that temporarily barred the Financial Creditor from suing the Corporate Debtor under the SARFAESI Act until further orders were issued. Meanwhile, on July 10, 2018, the Financial Creditor filed an application with the Calcutta Bench of the National Company Law Tribunal (henceforth referred to as “the Tribunal”), although for reasons other than limitation, the Corporate Debtor declined to submit the aforementioned application. On April 25, 2019, the Tribunal did, however, permit the application to be admitted in accordance with Section 7 of the Code.

Following the acceptance of the application under Section 7 of the Code, the Tribunal also designated an Insolvency Resolution Professional and issued a moratorium that forbade any of the actions or activities specified in Section 14 of the Code.

Next, using Section 61 of the Code, the Corporate Debtor moved an appeal against the Tribunal’s order before the National Company Law Appellate Tribunal (henceforth referred to as the Appellate Tribunal). The Debtor argued that the application was limited because, despite the fact that the Corporate Debtor’s account was declared non-performing as early as March 31, 2013,

The three-year statute of limitations specified in Article 137 of the Limitation Act had already elapsed when the application under Section 7 of the Code was submitted on August 27, 2018, more than five years after the original date of filing. The basis of limitation was only brought up in this appeal for the first time, and the Appellate Tribunal denied the appeal on the grounds that it had not made any observations about it in accordance with the Code. The Appellate Tribunal upheld the decision of the Tribunal after finding, on the merits, that the application made under Section 7 of the Code was filed within the allotted time. In the end, an appeal concerning the order was brought before the Hon’ble Supreme Court.

ISSUES

whether the applicant did not make a formal application under Section 5 of the Limitation Act, 1963, may the delay of almost three years in filing an application under Section 7 of the Insolvency and Bankruptcy Code 2016 be excused?
whether the applications submitted under Section 7 of the Code be subject to Section 14 of the Limitation Act, 1963? If this is the case, might the period of time excluded under Section 14 be admitted only once the procedures before the incorrect forum have concluded?

Arguments from both sides

Appellant

The argument of the appellant side is

To waive the more than three-year delay in submitting the application under section 7 of the Code, the Financial Creditor must move a formal application under u/s 5 of the Limitation Act, 1963.
Accordingly, an application filed under Section 7 of the Code cannot be granted the benefit of Section 14 of the Act with regard to the “explanation” given in Section 14 of the Limitation Act 1963, unless and until the following two requirements are satisfied: the Financial Creditor’s action under the SARFAESI Act is not classified as a civil proceeding, and the Financial Creditor’s proceedings under the Act had not yet concluded on the date the application was filed under Section 7 of the Code.

Respondents

As per Section 7 of the Code, an application for the initiation of insolvency resolution proceedings may be filed as soon as there is a default in payment of the debt that has become due. In this case, the three-year period prescribed by Art. 137 of the Limitation Act 1963 does not apply; instead, the necessary procedures were initiated on March 3, 2013, when the Financial Debtor received a notice under Section 13(2) of the SARFAESI Act, nearly a year after the debt was declared non-performing asset (NPA).

JUDGMENT

The ruling stated that: SARFAESI Act-related processes shall be treated as civil proceedings in a court; the Court may grant a delay condonation under Section 5 of the Limitation Act 1963 even in the absence of a formal application; the Limitation Act’s Section 14 may be drawn upon or used to calculate the statute of limitations for submitting an application under Section 7 of the Code; and even in situations where Section 14 does not precisely apply, the justifications stated in Section 14 may nevertheless be invoked.

Analysis

Regarding Section 14 of the Limitation Act, the Court determined that if the proceedings were ongoing at the time the application was filed under Section 7 of the Insolvency and Bankruptcy Code (IBC), the time spent in the proceedings prior to the wrong place could be subtracted from the statute of limitations. It emphasized that any forum that hears civil cases, including tribunals set up under the SARFAESI Act, may be considered a civil court. This interpretation allows the whole length of the ongoing procedures to be removed, ensuring that the application under Section 7 of the IBC is considered within the statute of limitations.

This decision made it clear that if an applicant can provide evidence supporting their delay in filing within the allotted time, the court may accept an application or an appeal under Section 5 of the Limitation Act, 1963. If there is sufficient documentation in the file to justify the delay, then no formal application is needed. As a result, the Court avoided unnecessary paperwork and saved time.

CONCLUSION
The concept of purposive interpretation, which enables the court to clarify legislative ambiguities or gaps by considering the legislative context when formulating interpretations, serves as the foundation for this ruling. Rather than relying solely on literal interpretations, the court employs a contextual approach to determine the objective of the statute. When a statute’s interpretation is unclear, the legislature or the court must make corrections. This tactic increases the likelihood that the law will achieve its objectives. In order to protect the interests of all parties concerned, the Code’s bankruptcy resolution mechanism will promptly sell off assets in an attempt to keep failing enterprises afloat long enough to pay off obligations.

The Supreme Court has made it abundantly evident that the ultimate goal of the bankruptcy settlement process is to recover debts due to creditors, not just to salvage failing enterprises. This opinion holds that the benefits of Section 14 of the Limitation Act also apply to petitions to begin the insolvency resolution process under the Code and actions under the SARFAESI Act. In the Sesh Nath Case, the Supreme Court applied a purposive reading of the law to clarify whether Sections 5 and 14 of the Limitation Act apply to Section 7 of the Insolvency and Bankruptcy Code.

REFERENCE

This Article is written by Bandi Yogitha, student of Damodaram Sanjivayya National Law Univercity, Vishakapatnam; Intern at Legal Vidhiya.

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