SABARMATI GAS LIMITED versus SHAH ALLOYS LIMITED

Citation: [2023] 4 S.C.R. 188 · Decided: 04-01-2023 · Supreme Court of India · Bench: AJAY RASTOGI · Disposal: Dismissed

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Judgment (excerpt)

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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the SICA was repealed w.e.f 01.12.2016 by coming into force of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
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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 ‘pre-
existing 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

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