JEETAM SAINI & ASSOCIATES: May 2018

APPLICATION OF LIMITATION ACT, 1963- UNDER IBC

INSOLVENCY AND BANKRUPTCY INFORMATION

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.

This is article of the series of editorials written by the Adv ACS Jeetam Kumar Saini on Corporate Laws(He also Written many articles Including Companies Act, 2013, SEBI, RBI Regulations, IBC) advocatejeetamsaini@gmail.com - 9785949998

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.

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 time-barred. This requires being read with the definition of ‘debt’ and ‘claim’ in the Code. Further, debts in winding up proceedings cannot be time-barred, and there appears to be no rationale to exclude the extension of this principle of law to the Code.

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” 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 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.

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.

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION.

INSOLVENCY RESOLUTION BY OPERATIONAL CREDITOR AND QUESTION WHETHER "DISPUTE" IN SECTION 5(6) IS AN INCLUSIVE OR EXCLUSIVE DEFINITION ?

INSOLVENCY AND BANKRUPTCY INFORMATION

As per section 8 of the Code, an operational creditor is required to deliver a demand notice on occurrence of a default.Within ten days from the receipt of the demand notice, the corporate debtor shall bring to the notice of the operational creditor the “existence of a dispute, if any, and record of the pendency of the suit or arbitration proceedings filed before the receipt of such notice or invoice in relation to such dispute” (emphasis supplied).

In this regard, the decision of the

Hon’ble Supreme Court

Mobilox Innovations Private Limited v. Kirusa Software Private Limited

clarifies that the dispute must be existing prior to the receipt of the notice and can be in a form other than a pending suit or arbitration proceeding.
The rationale given by the court is that it couldn’t have been the intent of the legislature that a dispute be only in the form of a pending suit or arbitration proceeding, and the relevant paragraph is extracted below:

“We have also seen the notes on clauses annexed to the Insolvency and Bankruptcy Bill of 2015, in which “the existence of a dispute” alone is mentioned. Even otherwise, the word “and” occurring in Section 8(2)(a) must be read as “or” keeping in mind the legislative intent and the fact that an anomalous situation would arise if it is not read as “or”. If read as “and”, disputes would only stave off the bankruptcy process if they are already pending in a suit or arbitration proceedings and not otherwise. This would lead to great hardship; in that a dispute may arise a few days before triggering of the insolvency process, in which case, though a dispute may exist, there is no time to approach either an arbitral tribunal or a court. Further, given the fact that long limitation periods are allowed, where disputes may arise and do not reach an arbitral tribunal or a court for upto three years, such persons would be outside the purview of Section 8(2) leading to bankruptcy proceedings commencing against them. Such an anomaly cannot possibly have been intended by the legislature nor has it so been intended.”

Further, the definition of the term ‘dispute’ in section 5(6) is an inclusive, and not an exhaustive definition. Thus, it was decided to amend section 8(2)(a) to replace ‘and’ with ‘or’, to be in line with the judgement of the Hon’ble Supreme Court discussed above, and the intent of the legislature.

IPAB-Judgement (TRADEMARK)

IPAB-Trade Mark Judgement

GODFREY PHILIPS INDIA LIMITED

V/s

GTC INDUSTRIES LIMITED

This is an appeal filed against Order dated October 03, 2008 passed by the Learned Deputy Registrar of Trade Marks in Opposition no. DEL-T- 635/52017 against Application no.454113 in class 34 for the mark 'ACTION'. The Deputy Registrar of Trade Marks has passed the order thereby allowing the Opposition No. DEL-T-635/52017 filed by Respondent No. 1, and rejected Appellant's application no. 454113 in class 34 for registration of the trademark 'ACTION'.

Tribunal View

Keeping in view of the factors as enumerated herein above, we are of the opinion that the Deputy Registrar did not consider properly as per law and facts, His order dated Sctober 3, 2008 in the opposition No.: DEL-T-635/52017, communicated is erroneous, hence it set aside by allowing the appeal of the Appellant. 27.

Accordingly, the office of the Registrar of Trade Marks, is hereby directed to proceed further for registration of trade mark ACTION under application no.: 454113 in class 34 of the appellant in accordance to law."

Please Find link of Judgement announced by the IPAB in respect to :-

https://drive.google.com/file/d/1ZH7dtQtkm6vajBdtfS5h3kTGTbWJXdam/view?usp=sharing

PRACTICAL ASPECTS REQUIREMENT FOR OPERATIONAL CREDITORS TO SUBMIT A CERTIFICATE FROM FINANCIAL INSTITUTIONS

INSOLVENCY AND BANKRUPTCY NEWS

Section 9(3)(c) of the Code provides that an operational creditor shall, along with the application, provide a certificate from a financial institution maintaining the accounts of the operational creditor, confirming that no payment of an operational debt has been received from the corporate debtor.

"But there are Several Problems which hinder filing of applications by operational creditors"

First, the definition of ‘financial institution’ under section 3(14) does not include foreign banks and non-scheduled banks, thus creating a void for filing of applications by creditors with bank accounts in foreign or non-scheduled banks

Second, the process of availing such certification may be cumbersome if the creditor has multiple bank accounts, and a certificate from only a few of her bank accounts may not sufficiently prove non-payment of the debt.

Third, banks presently do not have a format for providing such certification which may lead to denial of such certification by banks.

Last and most important, the certificate is not a conclusive proof of the relevant operational debt having been satisfied, as the financial institution may not have the details to map whether the entry in their records is in relation to the payment of the particular debt in question.

The Hon’ble Supreme Court in Macquarie Bank Limited v. Shilpi Cable Technologies Ltd.30 held that section 9(3)(c) of the Code is an optional requirement and an alternate understanding would make it discriminatory. It was further noted that if it were to be a mandatory requirement, many classes of operational creditors would be barred from being able to apply under the Code which may be violative of Article 14 of the Constitution of India. Through this, the Hon’ble Supreme Court has overruled various other decisions by National Company Law Appellate Tribunal (“NCLAT”) such as Smart Timing Steel Ltd. v. National Steel and Agro Industries Ltd. and DF Deutsche Forfait AG v. Uttam Galva Metallics Limited.

Disclaimer: The entire contents of this document have been prepared on the basis of relevant provisions and as per the information existing at the time of the preparation. Although care has been taken to ensure the accuracy, completeness and reliability of the information provided, I assume no responsibility therefore. Users of this information are expected to refer to the relevant existing provisions of applicable Laws. The user of the information agrees that the information is not a professional advice and is subject to change without notice. I assume no responsibility for the consequences of use of such information. IN NO EVENT SHALL I SHALL BE LIABLE FOR ANY DIRECT, INDIRECT, SPECIAL OR INCIDENTAL DAMAGE RESULTING FROM, ARISING OUT OF OR IN CONNECTION WITH THE USE OF THE INFORMATION.

IBC –Series -I (Daily Educational Series)

IBC –Series -I

THE INSOLVENCY AND BANKRUPTCY CODE, 2016 aims at promoting investments as well as resolution of insolvency of corporate persons, firms and individuals in time bound manner. It provides for designating the NCLT and DRT as Adjudicating Authorities for corporate persons and firms and individuals, respectively , for resolution of insolvency, liquidation and bankruptcy.

Important Definition:

“Corporate debtor” means a corporate person who owes a debt to any person;

“Creditor” means any person to whom a debt is owed and includes a financial creditor, an operational creditor, a secured creditor, an unsecured creditor and a decree-holder.

CORPORATE INSOLVENCY RESOLUTION PROCESS

(A) OPERATIONAL CREDITOR

Means a person to whom an operational debt is owned and includes any person to whom such debt has been legally assigned or transferred.

Question For Corporate persons what is ceiling limit of insolvency resolution and liquidation?

Answer Minimum Amount of Default is one lakh rupees.

Please Find Link of Series-I

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