Time spend in SARFAESI proceeding can be excluded for computing limitation for proceedings under Insolvency and Bankruptcy Code 2016

Time spent in proceedings pursued under SARFESI, is entitled to be excluded in later proceedings filed under Section 7 of Insolvency and Bankruptcy Code, in terms of Section 14(2) of Limitation Act, 1963. The only requirement is that the petitioner should be following the proceedings bonafidely.

The above-mentioned observation was made by NCALT in the case of Sesh Nath Singh vs. Baidyabati Sheoraphuli Cooperative Bank Ltd and Ors. (Company Appeal (AT) (INSOLVENCY) No. 672 of 2019) decided on 22.11.2019.

Facts :

The Financial Creditor (herein after referred as ‘FC’) granted cash credit facility of Rs. 1 crore to the CD vide sanction letter dated 12.2.2012. The CD executed an agreement of hypothecation of book debts. The FC further stated that CD account was declared NPA on 31.03.2013 on account of irregularities in payment and a demand notice u/s 13(2) of SARFEASI Act, 2002 was issued on 18.01.2014. Thereafter on 13.2.2014 notice u/s 13(4) was issued to CD. Thereafter on 19.12.2014 the CD filed a writ against the FC challenging the above said notice. Possession notice u/s 13(4) of SARFEASI Act was issued on 24.12.2015

and the possession order was issued on 11.5.2017 by the District Magistrate.

On 27.8.2018, FC has filed application u/s 7 of IBC before the Adjudicating Authority, NCLT, Kolkata. It was challenged that the proceedings before NCLT is barred by time.

The appellant argued that the respondent has filed the application under Section 7 of IBC on 27.08.2018 after about 5 years and 5 months from the date of accrual of cause of action i.e. 31.03.2013 whereas as per Article 137 of Limitation Act the application may be filed within three years from the date of accrual of cause of action i.e. till 30.03.2016. Thus the application filed under Section 7 of IBC is apparently time barred, therefore, the Adjudicating Authority has wrongly admitted the application. Hence the impugned order is liable to be set aside.

Held:

It was held that limitation for filing of proceedings under Section 7 IBC is governed by Article 137 of Limitation Act 1963 and since the Respondent has bonafidely prosecuted, within limitation period, proceedings under SARFESI, therefore, the Respondent is entitled for the exclusion of time period under Section 14(2) of Limitation Act i.e. the period of 3 years and 6 months.