Supreme Court of India
JIGNESH SHAH & ANR.versusUNION OF INDIA & ANR.
- Citation
- 2019 INSC 1080
- Decided
- 25 September 2019
- Disposal
- Disposed off
- Bench
- R F NARIMAN
Holding
The Supreme Court held that the Limitation Act applies to Section 7 applications under the IBC, the limitation period for a winding‑up petition starts on the date of default in payment of the debt, and because the petition was filed more than three years after the default (19 August 2012), it is time‑barred and must be set aside.
Summary
The petitioners, shareholders of La‑Fin Financial Services Pvt. Ltd., challenged a winding‑up petition filed by IL&FS under Section 433(e) of the Companies Act, 1956, which had been transferred to the NCLT as a Section 7 application under the Insolvency and Bankruptcy Code, 2016. The dispute arose from a 2009 share purchase agreement and a Letter of Undertaking that IL&FS claimed La‑Fin had breached in 2012, leading to a suit for specific performance in 2013. IL&FS later issued a statutory notice in 2015 and filed the winding‑up petition in October 2016, asserting that the petition was timely under the IBC. The Supreme Court held that Section 238A of the IBC makes the Limitation Act, 1963 applicable to Section 7 applications, and that the limitation period for a winding‑up petition begins on the date of default in payment of the debt (19 August 2012). Since the petition was filed more than three years after that date, it was time‑barred under Article 137 of the Limitation Act and could not proceed. Consequently, the NCLAT and NCLT orders admitting the petition were set aside and the civil appeal was allowed.
Issues considered
- The applicability of the Limitation Act, 1963 to applications filed under Section 7 of the Insolvency and Bankruptcy Code, 2016 via Section 238A.
- The appropriate trigger point for the limitation period for filing a winding‑up petition under Section 433(e) and Section 434 of the Companies Act, 1956.
- Whether the winding‑up petition filed on 21 October 2016 is barred by the three‑year limitation period under Article 137 of the Limitation Act.
- Whether a pending suit for specific performance affects the limitation period for a winding‑up petition.
- Whether the commercial insolvency or loss of substratum of the company must be pleaded for a winding‑up petition.
Legislation cited
- Companies Act, 1956s. 433(e), s. 434
- Companies (Transfer of Pending Proceedings) Rules, 2016
- Insolvency and Bankruptcy Code, 2016s. 238A
- Limitation Act, 1963s. Article 137
- SARFAESI Act, 2002s. 13(2)
Subjects
InsolvencyBankruptcyLimitation ActWinding upSection 7 IBCSection 433(e) Companies ActSection 434 Companies ActTime‑barred petitionSpecific performanceCommercial insolvency
Judgment
678 [2019]
SUPREME COURT 12 S.C.R. 678
REPORTS [2019] 12 S.C.R.
A JIGNESH SHAH & ANR.
v.
UNION OF INDIA & ANR.
(Writ Petition (Civil) No. 455 of 2019)
B
SEPTEMBER 25, 2019
[R. F. NARIMAN, R. SUBHASH REDDY
AND SURYA KANT, JJ.]
C Insolvency and Bankruptcy Code, 2016: s. 238A – Limitation
– Application of Limitation Act, 1963 to applications u/s 7 under
IBC – Execution of share purchase agreement between MCX, MCX–
E and Financial Services Company in 2009 whereby Financial
Services Company agreed to purchase equity shares of MCX–E
from MCX – Pursuant thereto, LF, a group company of MCX, issued
D
a ‘Letter of Undertaking’ to Financial Services Company to
purchase shares of MCX–SX after a period of one year, but before
a period of three years, from the date of investment – Expiry of
the said period – In 2012 Financial Services Company exercised
its option to sell its entire holding of shares in MCX–SX – However,
E LF’s case that it was under no legal or contractual obligation to
buy the said shares – Suit by Financial Services Company for
specific performance of the Letter of Undertaking by LF – High
Court passing an injunction order by restraining LF from alienating
its assets pending disposal of the suit – In 2016, Financial Services
F Company filing winding up petition against LF u/s. 433(e) in the
High Court – However, due to introduction of IBC, 2016, transfer
of the winding up petition to the NCLT as an application u/s. 7 –
NCLT admitted the petition holding that the bar of limitation not
attracted – Appeal by shareholders of LF – Dismissed by NCLAT
– On appeal, held: Trigger point for the purpose of limitation for
G filing of a winding up petition would be the date of default in
payment of the debt – Though it is clear that a winding up
proceeding is a proceeding ‘in rem’ and not a recovery proceeding,
the trigger of limitation for the winding up petition would be the
date of default – On facts, statutory notice given on 03.11.2015
H
678
JIGNESH SHAH & ANR. v. UNION OF INDIA & ANR. 679
does not refer to any facts as to the commercial insolvency of LF A
– Statutory notice only refers to the suit proceedings and attachment
by the Economic Offences Wing in December 2013 – Company’s
insolvency neither been pleaded nor is on facts – In Form-1, upon
transfer of the winding up proceedings to the NCLT, date of default
is 19.08.2012; making it clear that three-years from that date had B
long since elapsed when the winding up petition was filed in 2016
– Thus, the winding up Petition being beyond the period of three-
years mentioned in Article 137 of the Limitation Act is time-barred,
and cannot therefore be proceeded with – Impugned judgment of
the NCLAT and the judgment of the NCLT set aside – Limitation
Act, 1963 – Article 137 – Companies Act, 1956 – ss. 433 and 434. C
Disposing of Writ Petition (Civil) No.455 of 2019, Special
Leave Petition (Diary No.13468 of 2019), Transfer Petition (Civil)
No.817 of 2019 and allowing Civil Appeal (Diary No. 16521 of
2019), the Court
D
HELD: 1.1 A suit for recovery based upon a cause of action
that is within limitation cannot in any manner impact the separate
and independent remedy of a winding up proceeding. In law, when
time begins to run, it can only be extended in the manner
provided in the Limitation Act. For example, an E
acknowledgement of liability under Section 18 of the Limitation
Act would certainly extend the limitation period, but a suit for
recovery, which is a separate and independent proceeding
distinct from the remedy of winding up would, in no manner,
impact the limitation within which the winding up proceeding is
to be filed, by somehow keeping the debt alive for the purpose F
of the winding up proceeding. [Para 19] [701-B-D]
1.2 The Financial Services Company pursued with
reasonable diligence the cause of action which arose in August,
2012 by filing a suit against LF for specific performance of the
G
Letter of Undertaking in June, 2013. What has been lost by the
said party’s own inaction or laches, is the filing of the Winding
up Petition long after the trigger for filing of the said petition
had taken place; the trigger being the debt that became due to
Financial Services, in repayment of which default has taken
place. [Para 21] [703-D-E] H
680 SUPREME COURT REPORTS [2019] 12 S.C.R.
A 1.3 A reading of the Section 433(e) and Section 434 of the
Companies Act, 1956 would show that the starting point of the
period of limitation is when the company is unable to pay its
debts, and that Section 434 is a deeming provision which refers
to three situations in which a Company shall be deemed to be
“unable to pay its debts” under Section 433(e). In the first
B
situation, if a demand is made by the creditor to whom the
company is indebted in a sum exceeding one lakh then due,
requiring the company to pay the sum so due, and the company
has for three weeks thereafter “neglected to pay the sum”, or
to secure or compound for it to the reasonable satisfaction of
C the creditor. “Neglected to pay” would arise only on default to
pay the sum due, which would clearly be a fixed date depending
on the facts of each case. Equally in the second situation, if
execution or other process is issued on a decree or order of
any Court or Tribunal in favour of a creditor of the company, and
is returned unsatisfied in whole or in part, default on the part of
D
the debtor company occurs. This again is clearly a fixed date
depending on the facts of each case. And in the third situation,
it is necessary to prove to the “satisfaction of the Tribunal” that
the company is unable to pay its debts. The trigger point is the
date on which default is committed, on account of which the
E Company is unable to pay its debts. This again is a fixed date
that can be proved on the facts of each case. Thus, Section 433(e)
read with Section 434 of the Companies Act, 1956 would show
that the trigger point for the purpose of limitation for filing of a
winding up petition under Section 433(e) would be the date of
default in payment of the debt in any of the three situations
F
mentioned in Section 434. [Para 22] [704-D-H; 705-A]
1.4 Nowhere in the Winding up Petition is it alleged that
the company sought to be wound–up has lost its substratum, in
the sense that there is no reasonable prospect of it ever making
a profit in the future, nor can it be said that the company had
G abandoned its business and is, therefore, unable to meet the
outstandings owed by it. On the other hand, what emerges, is
that it is not open for a company to say that a debt is undisputed,
that it has ability to pay the debt, but will not pay the debt.
Equally, where a debt is clearly owed, but the exact amount of
H debt is disputed, the company will be held to be unable to pay
JIGNESH SHAH & ANR. v. UNION OF INDIA & ANR. 681
its debts. What has to be seen in each case is whether the debt A
is bona fide disputed. If so, without more, a winding up petition
would then be dismissed. One other thing must be noticed at
this stage. The trigger for limitation is the inability of a company
to pay its debts. Undoubtedly, this trigger occurs when a default
takes place, after which the debt remains outstanding and is not
B
paid. It is this date alone that is relevant for the purpose of
triggering limitation for the filing of a winding up petition.
Though it is clear that a winding up proceeding is a proceeding
‘in rem’ and not a recovery proceeding, the trigger of limitation,
so far as the winding up petition is concerned, would be the date
of default. Questions as to commercial solvency arise in cases C
covered by Sections 434(1)(c) of the Companies Act, 1956,
where the debt has first to be proved, after which the Court will
then look to the wishes of the other creditors and commercial
solvency of the company as a whole. The stage at which the
Court, therefore, examines whether the company is
D
commercially insolvent is once it begins to hear the winding up
petition for admission on merits. Limitation attaches insofar as
petitions filed under Section 433(e) are concerned at the stage
that default occurs for, it is at this stage that the debt becomes
payable. For this reason, it cannot be said that the cause of action
for the purposes of limitation would include the commercial E
insolvency or the loss of substratum of the company. [Para 25]
[706-G-H; 707-A-E]
1.5 Softsule (P) Ltd., Re states the law on winding up
petitions filed under Section 433(a) of the Companies Act, 1956,
the primary test is that a winding up petition is not a legitimate F
means of seeking to enforce payment of a debt which is bona
fide disputed by the Company. Absent such dispute, the petition
may be admitted. Equally, where the debt is bona fide disputed,
there cannot be ‘neglect to pay’ within the meaning of Section
434(1)(a) of the Companies Act, 1956 so that the deeming
provision then does not come into play. Also, the moment there G
is a bona fide dispute, the debt is then not ‘due’. The High Court
also correctly appreciates that whether the company is
commercially solvent is one of the considerations in order to
determine whether the company is able to pay its debts or not.
[Para 28] [709-D-F] H
682 SUPREME COURT REPORTS [2019] 12 S.C.R.
A Softsule (P) Ltd., Re (1977) 47 Comp Cas 438 (Bom)
– approved.
1.6 Even on the facts of this case, the Winding up Petition
alleges that the ultimatum to the Respondent company asserting
that the Respondent company was legally obliged to purchase
B the requisite shares in accordance with the terms of the Letter
of Undertaking was on 7th January, 2013. By this date at the very
latest, the cause of action for filing a petition under Section
433(e) certainly arose. Also, the statutory notice given on 3rd
November, 2015 does not refer to any facts as to the commercial
insolvency of LF. The statutory notice only refers to the suit
C proceedings and attachment by the EOW which had taken place
long before in December 2013. In the Winding up Petition itself,
what is referred to is the fall in the assets of LF to being worth
approximately INR 200 crores as of October, 2016, which again
does not correlate with 3rd November, 2015, being the date on
which the statutory notice was itself issued. This again is only
D
for the purpose of appointing an Officer of the Court as Official
Liquidator in order to manage the day–to–day affairs and
otherwise secure and safeguard the assets of the Respondent
company. There is no averment in the petition that thanks to
these or other facts the Company’s substratum has disappeared,
E or that the Company is otherwise commercially insolvent. It is
clear therefore that even on facts, the company’s substratum
disappearing or the commercial insolvency of the company has
not been pleaded. Whereas, in Form–1, upon transfer of the
winding up proceedings to the NCLT, what is correctly stated
is that the date of default is 19th August, 2012; making it clear
F that three–years from that date had long since elapsed when the
Winding up Petition under Section 433(e) was filed on 21 st
October, 2016. [Para 29, 30] [709-G-H; 710-A-D]
1.7 The Winding up Petition filed on 21st October, 2016
being beyond the period of three–years mentioned in Article 137
G of the Limitation Act is time–barred, and cannot therefore be
proceeded with any further. Thus, impugned judgment of the
NCLAT and the judgment of the NCLT is set aside. [Para 31]
[710-E-F]
Rajender Singh and Ors. v. Santa Singh and Ors.
H (1973) 2 SCC 705 : [1974] 1 SCR 381 – relied on.
JIGNESH SHAH & ANR. v. UNION OF INDIA & ANR. 683
B.K. Educational Services Pvt. Ltd. v. Parag Gupta and A
Associates (2018) SCC OnLine 1921 ; M.P. Steel
Corporation v. CCE (2015) 7 SCC 58 ; Hariom
Firestock Limited v. Sunjal Engineering Pvt. Ltd.
(1999) 96 Comp. Cas 349 ; Ferro Alloys Corporation
Ltd. v. Rajhans Steel Ltd. (2000) Comp Cas 426 ;
B
Rameswar Prasad Kejriwal & Sons Ltd. v. M/s.
Garodia Hardware Stores (2002) 108 Comp Cas 187
; Dr. Dipankar Chakraborty v. Allahabad Bank & Ors.
(2017) SCC OnLine Cal 8742 ; Indo Alusys Industries
v. Assotech Contracts (India) Ltd. (2009) 110 DRJ 384
; M/s Madhusudan Gordhandas & Co. v. Madhu C
Woollen Industries Pvt. Ltd. (1971) 3 SCC 632 : [1972]
2 SCR 201 ; Pradeshiya Industrial & Investment
Corporation of U.P. v. North India Petrochemicals Ltd.
and Anr. (1994) 3 SCC 348 ; Mediquip Systems (P)
Ltd. v. Proxima Medical System GMBH (2005) 7 SCC
D
42 : [2005] 2 SCR 1015 ; Re: Messrs: Bhimji Nanji
and Co. (1969) Mh.L.J. 827 – referred to.
Board of Regents of the University of the State of New
York et. al. v. Mary Tomanio 100 S. Ct. 1790 ; Martiza
Alamo–Hornedo v. Juan Carlos Puig and Jose Perez–
Riera 745 F.3d 578 ; Re Karnos Property Co. Ltd. E
(1989) 5 B.C.C. 14 – referred to.
Case Law Reference
(2018) SCC OnLine 1921 referred to Para 5
(2000) Comp Cas 426 referred to Para 12 F
(1999) 96 Comp. Cas 349 referred to Para 11
(2000) Comp Cas 426 referred to Para 12
(2002) 108 Comp Cas 187 referred to Para 13
G
(2017) SCC OnLine Cal 8742 referred to Para 14
(2009) 110 DRJ 384 referred to Para 15
(1969) Mh.L.J. 827 referred to Para 20
[1974] 1 SCR 381 relied on Para 21 H
684 SUPREME COURT REPORTS [2019] 12 S.C.R.
A [1972] 2 SCR 201 referred to Para 23
[1994] 1 SCR 815 referred to Para 26
[2005] 2 SCR 1015 referred to Para 27
(1977) 47 Comp Cas 438 approved Para 28
B CIVIL ORIGINAL/APPELLATE JURISDICTION : Writ
Petition (Civil) No. 455 of 2019.
[Under Article 32 of the Constitution of India.]
With
C T.P.(C) No. 817 of 2019, W.P.(C) No. 645 of 2019, C.A. Nos.
7618-7619 of 2019, Diary No. 13468 of 2019.
Dr. A. M. Singhvi, Neeraj Kishan Kaul, Sr. Advs., Rajiv Raheja,
Ms. Liz Mathew, Mahesh Agarwal, Arvind Lakhawat, Ankur Saigal,
Himanshu Satija, Ms. Priyanka Vora, E. C.Agrawala, Shaishir S. Divatia
Samar Kachwaha, Ms. Dendri Neogi, Ms. C. Parwani, Navneet R.,
D
Ms. Sunali Jain, Ms. Namisha Chadha, Ms. Pritha Suri, Nishant Rao,
Ms. Diksha Rai, Ms. Palak Mahajan, Vaibhav Manu Srivastava, Anish
R. Shah, Advs. for the appearing parties.
The Judgment of the Court was delivered by
E R. F. NARIMAN, J.
W.P.(C) No.645 OF 2019
1. The issues involved in Writ Petition (Civil) No.645 of 2019 are
entirely different from the Writ Petition (Civil) No.455 of 2019 and its
other connected matters. This writ petition is accordingly de-tagged from
F Writ Petition (Civil) No.455 of 2019. The Registry is directed to list
this writ petition separately.
W.P.(C) No.455 of 2019 & Civil Appeal (Diary No.16521
of 2019)
2. Delay is condoned. Civil Appeal (Diary No. 16521 of 2019)
G is admitted.
3. Writ Petition (Civil) No.455 of 2019 and Civil Appeal (Diary
No. 16521 of 2019) have been filed by Shri Jignesh Shah and Smt.
Pushpa Shah respectively, both of whom are shareholders of La-Fin
Financial Services Pvt. Ltd. (hereinafter “La-Fin”) assailing the order
H of the National Company Law Tribunal, Mumbai Bench (hereinafter
JIGNESH SHAH & ANR. v. UNION OF 685
INDIA & ANR. [R. F. NARIMAN, J.]
referred to as the “NCLT”) admitting a winding up petition that was A
filed by IL&FS Financial Services Ltd. (hereinafter referred to as
“IL&FS”) against La-Fin before the High Court of Judicature at
Bombay (hereinafter referred to as the “Bombay High Court”), which
was transferred to the NCLT and then heard as a Section 7 application
under the Insolvency and Bankruptcy Code, 2016 (hereinafter referred
B
to the “the Code”).
4. The brief facts necessary to appreciate the narrow controversy
that arises in Writ Petition (Civil) No.455 of 2019 and its connected
matters are as follows:
(i) On 20th August, 2009, a share purchase agreement was C
executed between Multi-Commodity Exchange India
Limited (hereinafter referred to as “MCX”), MCX Stock
Exchange Limited (hereinafter referred to as “MCX-SX”)
and IL&FS, whereby IL&FS agreed to purchase 442 lakh
equity shares of MCX-SX from MCX.
D
(ii) Pursuant to this agreement, La-Fin, as a group company of
MCX, issued a ‘Letter of Undertaking’ to IL&FS on 20th
August, 2009 (hereinafter referred to as the “Letter of
Undertaking”) stating that La-Fin or its appointed nominees
would offer to purchase from IL&FS the shares of MCX-
SX after a period of one year, but before a period of three E
years, from the date of investment. On facts, this period of
three years expired in August, 2012.
(iii) IL&FS, therefore, by its letter dated 3rd August, 2012,
exercised its option to sell its entire holding of shares in
MCX-SX, and called upon La-Fin to purchase these shares F
in accordance with the Letter of Undertaking. On 16th
August, 2012, La-Fin replied that it was under no legal or
contractual obligation to buy the aforesaid shares.
(iv) Thereafter, correspondence between the parties continued,
until finally, on 19th June, 2013, IL&FS filed a Suit No.449 G
of 2013 in the Bombay High Court for specific performance
of the Letter of Undertaking by La-Fin or, in the alternative,
for damages. It is important to note that the cause of action
for the suit - as stated in the plaint - arose on 16th August,
2012, i.e. the day La-Fin purportedly refused to honour its
obligation under the Letter of Undertaking. H
686 SUPREME COURT REPORTS [2019] 12 S.C.R.
A (v) On 13 th October, 2014, a learned Single Judge of the
Bombay High Court passed an injunction order restraining
La-Fin from alienating its assets pending disposal of the suit,
subject to attachments of La-Fin’s properties that had been
made by the Economic Offences Wing of the Mumbai
Police (hereinafter referred to as the “EOW”) during the
B
pendency of the suit. An appeal against this order was
dismissed by a Division Bench of the Bombay High Court
on 11th September, 2015.
(vi) On 3rd November, 2015, a statutory notice under Section 433
and 434 of the Companies Act, 1956 was issued by IL&FS
C to La-Fin, referring to the attachment by the EOW, and
stating that La-Fin was obviously in no financial position to
pay the sum of INR 232,50,00,000/- which, according to
IL&FS, was owing to them as of 31st October, 2015. On
18th November, 2015, a reply was promptly given by La-
D Fin to the aforesaid notice referring to the pending suit, and
stoutly disputing the fact that any amount was due and
payable. The reply went on to state that La-Fin was
otherwise commercially sound and that the statutory notice
issued under Sections 433 and 434 of the Companies Act,
1956 was only a pressure tactic.
E
(vii) On 21st October, 2016, a winding up petition (hereinafter
referred to as the “Winding up Petition”) was then filed by
IL&FS against La-Fin in the Bombay High Court under
Section 433(e) of the Companies Act, 1956.
F (viii) The Code came into force on 1st December, 2016, and as
a result, as per the Insolvency and Bankruptcy (Application
to Adjudicating Authority) Rules, 2016, the Winding up
Petition was transferred to the NCLT as a Section 7
application under the Code. The statutory form under these
Rules, namely, Form-1 was filled up by IL&FS indicating
G that the date of default was 19th August, 2012.
(ix) On 28th August, 2018, the said Winding up Petition was
admitted by the NCLT as an application under Section 7 of
the Code, stating on a reading of the share purchase
agreement and the Letter of Undertaking that a financial
H debt had, in fact, been incurred by La-Fin. The National
JIGNESH SHAH & ANR. v. UNION OF 687
INDIA & ANR. [R. F. NARIMAN, J.]
Company Law Appellate Tribunal (hereinafter referred to A
as the “NCLAT”) by an order dated 21st January, 2019
dismissed the appeal filed by Shri Jignesh Shah against the
aforesaid admission order, agreeing with the NCLT that the
aforesaid transaction would fall within the meaning of
“financial debt” under the Code, and that the bar of
B
limitation would not be attracted as the Winding up Petition
was filed within three years of the date on which the Code
came into force, viz., 1st December, 2016.
(x) A Writ Petition was filed by Smt. Pushpa Shah against these
orders in the Bombay High Court, challenging certain
C
provisions of the Code, with which we are not directly
concerned. Writ Petition (Civil) No.455 of 2019 was then
filed in this Court on 4 th April, 2019 challenging the
constitutionality of certain provisions of the Code, as well
as the NCLT and NCLAT orders, after which the Civil
Appeal (Diary No. 16521 of 2019) was also filed against D
the NCLAT order under Section 62 of the Code.
5. Dr. Abhishek Manu Singhvi, learned Senior Advocate
appearing on behalf of the Petitioners/Appellants, did not go into the
merits of the case, but has raised only the statutory bar of limitation
against IL&FS. According to the learned Senior Advocate, after this E
Court’s judgment in B.K. Educational Services Pvt. Ltd. v. Parag
Gupta and Associates 2018 SCC OnLine 1921, it is clear that the
Limitation Act, 1963 (hereinafter referred to as the “Limitation Act”)
would apply to all Section 7 applications that are filed under the Code
and that the residuary Article, i.e., Article 137 of the Limitation Act F
would be attracted to the facts of this case. Inasmuch as the Winding
up Petition that has been transferred to the NCLT was filed on 21st
October, 2016, i.e., beyond the period of three years prescribed (as the
cause of action had arisen in August, 2012), it is clear that a time-barred
winding up petition filed under Section 433 of the Companies Act, 1956
would not suddenly get resuscitated into a Section 7 petition under the G
Code filed within time, by virtue of the transfer of such petition. He
relied heavily on B.K. Educational Services Pvt. Ltd. (supra) which,
according to him, covered this case on all fours. In addition, he relied
upon High Court judgments, Judgments from the United States of
America, and one English judgment to buttress the proposition that the H
688 SUPREME COURT REPORTS [2019] 12 S.C.R.
A mere filing of a suit for specific performance would not in any manner
impact the limitation period for a winding up petition, which as a separate
and independent remedy, must fall or stand on its own legs. He also
painstakingly took us through the statutory notice under Sections 433
and 434 sent by IL&FS, as well as the Winding up Petition filed by
B IL&FS, and relied heavily on the fact that the Form-1 (which was filled
by IL&FS in order to transfer the aforesaid Winding up Petition to the
NCLT) itself stated that the date of default was 19th August, 2012,
clearly indicating that the Winding up Petition, being beyond three years
of the cause of action, was time-barred.
C 6. On the other hand, Shri Neeraj Kishan Kaul, learned Senior
Advocate appearing on behalf of the Respondents IL&FS, argued that
the cause of action for the suit and the cause of action for the Winding
up Petition filed were separate and distinct. He argued that it is well-
settled that a winding up petition cannot be filed in order to recover a
debt, but is a proceeding ‘in rem’, which involves commercial insolvency
D of the company sought to be wound up. Therefore, according to the
learned Senior Advocate, the cause of action for filing the Winding up
Petition arose only in 2015/2016, after Shri Jignesh Shah (the Petitioner
before us) was arrested; after attachment of the assets of La-Fin; and
as stated in the Winding up Petition, after La-Fin’s assets had fallen
E from being worth around INR 1000 crores in 2013, to only being worth
around INR 200 crores in October, 2016. He relied on several judgments
to support this argument. According to him, the suit that was filed by
IL&FS for specific performance of the Letter of Undertaking on 19th
June, 2013 kept alive the debt that was owed to his client and, therefore,
in any event, the Winding up Petition filed after such debt was kept
F alive would be in time, notwithstanding that it was filed at a subsequent
period after the suit. According to him, in any event, limitation being a
mixed question of fact and law, at best the matter ought to be remanded
to the NCLT for a determination on this mixed question.
7. Having heard the learned Senior Counsel for the parties, it is
G important to first advert to this Court’s decision in B.K. Educational
Services Pvt. Ltd. (supra) in which Section 238A of the Code was
referred to, which states as follows:
“238A. Limitation.—The provisions of the Limitation Act, 1963
(36 of 1963) shall, as far as may be, apply to the proceedings or
H appeals before the Adjudicating Authority, the National Company
JIGNESH SHAH & ANR. v. UNION OF 689
INDIA & ANR. [R. F. NARIMAN, J.]
Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt A
Recovery Appellate Tribunal, as the case may be.”
8. In paragraph 7 of the said judgment, the Report of the
Insolvency Law Committee of March, 2018 was referred to as follows:
“7. Having heard the learned counsel for both sides, it is
B
important to first set out the reason for the introduction of Section
238A into the Code. This is to be found in the Report of the
Insolvency Law Committee of March, 2018, as follows:
“28. APPLICATION OF LIMITATION ACT, 1963
28.1 The question of applicability of the Limitation Act, 1963 C
(“Limitation Act”) to the Code has been deliberated upon in
several judgments of the NCLT and the NCLAT. 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.1 In light of the confusion in this regard,
D
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.2 This requires being read with the definition of ‘debt’ and
‘claim’ in the Code. Further, debts in winding up proceedings E
cannot be time-barred,3 and there appears to be no rationale to
exclude the extension of this principle of law to the Code.
28.2 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 F
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
G
inaction, negligence or latches”4. 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 H
690 SUPREME COURT REPORTS [2019] 12 S.C.R.
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.
28.3 Given that the intent was not to package the Code as a fresh
opportunity for creditors and claimants who did not exercise their
B 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
C its own debts for the purpose of CIRP and are not in the form
of a creditor’s remedy.”
(emphasis supplied)
9. After referring to Rule 5 of the Companies (Transfer of
D Pending Proceedings) Rules, 2016, the Court extracted passages from
the judgment in M.P. Steel Corporation v. CCE (2015) 7 SCC 58
and then concluded:
“20. A perusal of this judgment would show that limitation, being
procedural in nature, would ordinarily be applied retrospectively,
E save and except that the new law of limitation cannot revive a
dead remedy. This was said in the context of a new law of
limitation providing for a longer period of limitation than what was
provided earlier. In the present case, these observations are
apposite in view of what has been held by the Appellate Tribunal.
F An application that is filed in 2016 or 2017, after the Code has
come into force, cannot suddenly revive a debt which is no longer
due as it is time-barred.
21. In State of Kerala v. V.R. Kalliyanikutty, (1999) 3 SCC
657, (“V.R. Kalliyanikutty”), this Court dealt with whether a time-
G barred debt can be recovered by resorting to recovery
proceedings under the Kerala Revenue Recovery Act of 1968.
In stating that the said Act cannot extend to recovery of a time-
barred debt, this Court stated in paragraph 8,
“8. …… In every case the exact meaning of the word “due”
H will depend upon the context in which that word appears.”
JIGNESH SHAH & ANR. v. UNION OF 691
INDIA & ANR. [R. F. NARIMAN, J.]
22. It was held in that case that Section 17(3) of the Kerala A
Revenue Recovery Act, 1968 made it clear that a person making
payment under protest will have a right to institute a suit for
refund of the whole or part of the sum paid by him under protest.
It was thus held that when the right to file such a suit is expressly
preserved, there is a necessary implication that the shield of
B
limitation available to a debtor in a suit is also preserved, as a
result of which, a wide interpretation of the expression “amount
due” to include time-barred debts would destroy an important
defence available to a debtor in a suit against him by the creditor,
and may fall foul of Article 14 of the Constitution of India.
C
23. Another judgment referred to by learned counsel for the
appellants is contained in Union of India v. Uttam Steels Ltd.,
(2015) 13 SCC 209. Here the question was whether Section 11-
B of the Central Excise Act as amended on 12.05.2000 would
apply to the fact situation in that case. Section 11-B provided a
longer period of limitation by substituting “six months” with “one D
year”. Since the rebate application was filed within a period of
one year, the respondent contended that they were within time.
This Court held, in paragraph 10, that limitation, being procedural
law, would ordinarily be retrospective in nature. This is however
with one proviso superadded, which is that the claim made under
E
the amended provision should not itself have been a dead claim
in the sense that it was time-barred before the amending Act
came into force, bringing a larger period of limitation with it. On
the facts of that case, it was held that since the claim for rebate
was made beyond the period of six months but within the extended
period of one year, such extended period would not avail the F
respondent in that case.
24. In Allied Motors (P) Ltd. v. CIT, (1997) 3 SCC 472, this
Court took the view that the amendment made to Section 43-B
in the Income Tax Act was retrospective, holding:
G
“14. …… As observed by G.P. Singh in his Principles of
Statutory Interpretation, 4th Edn. at p. 291: “It is well settled
that if a statute is curative or merely declaratory of the
previous law retrospective operation is generally intended.”
In fact the amendment would not serve its object in such a
situation unless it is construed as retrospective……” H
692 SUPREME COURT REPORTS [2019] 12 S.C.R.
A 25. In the present case also, it is clear that the amendment of
Section 238A would not serve its object unless it is construed as
being retrospective, as otherwise, applications seeking to resurrect
time-barred claims would have to be allowed, not being governed
by the law of limitation.”
B The Court then held:
“38. This case is most apposite. As in the present case, and
as is reflected in the Insolvency Law Committee Report of
March, 2018, the legislature did not contemplate enabling a
creditor who has allowed the period of limitation to set in
C to allow such delayed claims through the mechanism of the
Code. The Code cannot be triggered in the year 2017 for a
debt which was time-barred, say, in 1990, as that would lead
to the absurd and extreme consequence of the Code being
triggered by a stale or dead claim, leading to the drastic
consequence of instant removal of the present Board of
D
Directors of the corporate debtor permanently, and which
may ultimately lead to liquidation and, therefore, corporate
death. This being the case, the expression “debt due” in the
definition sections of the Code would obviously only refer
to debts that are “due and payable” in law, i.e., the debts
E that are not time-barred.”
Finally, the Court held:
“48. It is thus clear that since the Limitation Act is applicable
to applications filed under Sections 7 and 9 of the Code
F from the inception of the Code, Article 137 of the Limitation
Act gets attracted. “The right to sue”, therefore, accrues
when a default occurs. If the default has occurred over
three years prior to the date of filing of the application, the
application would be barred under Article 137 of the
Limitation Act, save and except in those cases where, in
G the facts of the case, Section 5 of the Limitation Act may
be applied to condone the delay in filing such application.”
10. This judgment clinches the issue in favour of the Petitioner/
Appellant. With the introduction of Section 238A into the Code, the
provisions of the Limitation Act apply to applications made under the
H Code. Winding up petitions filed before the Code came into force are
JIGNESH SHAH & ANR. v. UNION OF 693
INDIA & ANR. [R. F. NARIMAN, J.]
now converted into petitions filed under the Code. What has, therefore, A
to be decided is whether the Winding up Petition, on the date that it
was filed, is barred by lapse of time. If such petition is found to be
time-barred, then Section 238A of the Code will not give a new lease
of life to such a time-barred petition. On the facts of this case, it is
clear that as the Winding up Petition was filed beyond three years from
B
August, 2012 which is when, even according to IL&FS, default in
repayment had occurred, it is barred by time.
11. Dr. Singhvi relied upon a number of judgments in which
proceedings under Section 433 of the Companies Act,1956 had been
initiated after suits for recovery had already been filed. These judgments
have held that the existence of such suit cannot be construed as having C
either revived a period of limitation or having extended it, insofar as
the winding up proceeding was concerned. Thus, in Hariom Firestock
Limited v. Sunjal Engineering Pvt. Ltd. (1999) 96 Comp Cas 349,
a Single Judge of the Karnataka High Court, in the fact situation of a
suit for recovery being filed prior to a winding up petition being filed, D
opined:
“8…To my mind, there is a fallacy in this argument because the
test that is required to be applied for purposes of ascertaining
whether the debt is in existence at a particular point of time is
the simple question as to whether it would have been permissible E
to institute a normal recovery proceeding before a civil court in
respect of that debt at that point of time. Applying this test and
de hors that fact that the suit had already been filed, the question
is as to whether it would have been permissible to institute a
recovery proceeding by way of a suit for enforcing that debt in
the year 1995, and the answer to that question has to be in the F
negative. That being so, the existence of the suit cannot be
construed as having either revived the period of limitation or
extended it. It only means that those proceedings are pending
but it does not give the party a legal right to institute any other
proceedings on that basis. It is well settled law that the limitation
is extended only in certain limited situations and that the existence G
of a suit is not necessarily one of them. In this view of the matter,
the second point will have to be answered in favour of the
respondents and it will have to be held that there was no
enforceable claim in the year 1995, when the present petition was
instituted.” H
694 SUPREME COURT REPORTS [2019] 12 S.C.R.
A 12. Likewise, a Single Judge of the Patna High Court in Ferro
Alloys Corporation Ltd. v. Rajhans Steel Ltd. (2000) Comp Cas
426 also held:
“12….In my opinion, the contention lacks merit. Simply because
a suit for realisation of the debt of the petitioner-company against
B opposite party No. 1 was instituted in the Calcutta High Court
on its original side, such institution of the suit and the pendency
thereof in that court cannot enure for the benefit of the present
winding up proceeding. The debt having become time-barred
when this petition was presented in this court, the same could
not be legally recoverable through this court by resorting to
C winding up proceedings because the same cannot legally be
proved under section 520 of the Act. It would have been
altogether a different matter if the petitioner-company
approached this court for winding up of opposite party No. 1 after
obtaining a decree from the Calcutta High Court in Suit No. 1073
of 1987, and the decree remaining unsatisfied, as provided in
D
clause (b) of sub-section (1) of section 434. Therefore, since the
debt of the petitioner-company has become time-barred and
cannot be legally proved in this court in course of the present
proceedings, winding up of opposite party No. 1 cannot be
ordered due to non-payment of the said debt.”
E 13. In Rameswar Prasad Kejriwal & Sons Ltd. v. M/s.
Garodia Hardware Stores (2002) 108 Comp Cas 187, a money suit
that was filed in 1994 was decreed in 1997, after which a winding up
petition under Section 433 of the Companies Act, 1956 was filed in 2001.
In this fact situation, the learned Single Judge held:
F “13. It is an admitted position that the cause of action of the
company arose in 1992. The suit was filed in 1994 and the decree
was obtained in 1997. But on the basis of the said debt which is
said to be merged in the decree, the winding up petition cannot
be filed after the period of limitation that means after a period
of three years.
G
14. It is not in dispute that in the instant case, the period of
limitation is covered by residuary article namely Article 137 of
Limitation Act. A special Bench of this Court, in the case of Hari
Mohan Dalai v. Parmeshwar Shau, reported in 56 Indian Law
Reports, 61, has made certain observations on how the residuary
H article is to be construed.
JIGNESH SHAH & ANR. v. UNION OF 695
INDIA & ANR. [R. F. NARIMAN, J.]
15. Construing the provisions of Article 181 the residuary article A
under the old Act, Chief Justice Rankin, speaking for the Special
Bench, held that “In Article 181 the legislature makes provisions
not for any definite type of cases but for an unknown number
of cases of all kinds. The provision which it makes specific as
regard the period of limitation, but as regarded the terminus a
B
quo it is content to state in general language and quite simply
the fundamental principle that, for the purposes of any particular
application, time is to run from the moment at which the applicant
first had the right to make it.”
16. This Court goes by the same principle and holds that period
of limitation should be counted from 1992. But assuming it is not C
counted from 1992, it has to be counted from 1997. Therefore,
considering the matter from all possible angles, this Court is of
the view that instant winding up petition has become barred on
the date on which it is presented. It cannot be held that in case
of winding up petition, limitation period will be 12 years which D
may be the case in matters of execution of a decree.
17. Therefore, this winding up petition is, therefore, dismissed
but in the facts of this case, there will be no order as to costs.”
14. In Dr. Dipankar Chakraborty v. Allahabad Bank & Ors.
2017 SCC OnLine Cal 8742, the fact situation was that a suit had been E
filed by the petitioner in the City Court at Calcutta for damages against
the Allahabad Bank. The Bank, in turn, filed a proceeding under Section
19 of the Recovery of Debts Due to Banks and Financial Institutions
Act, 1993 in 2001 before the Debt Recovery Tribunal, Calcutta. The
Civil Suit was also transferred to the Debt Recovery Tribunal, Calcutta F
where both proceedings were pending adjudication. Meanwhile, under
the Securitisation and Restructure of Financial Assets and Enforcement
of Securities Interest Act, 2002 (hereinafter referred to as the
“SARFAESI Act”), a notice dated 3rd March, 2016 was issued under
Section 13(2) of the SARFAESI Act. The question which arose before
the Court was whether the invocation of the SARFAESI Act, being G
beyond limitation, would be saved because of the pending proceedings
under Section 19 of the Recovery of Debts Due to Banks and Financial
Institutions Act, 1993. The Court negatived the plea of the Bank, stating:
“22. Section 14 of the Limitation Act, 1963 permits exclusion of
the time taken to proceed bona fide in a Court without jurisdiction. H
696 SUPREME COURT REPORTS [2019] 12 S.C.R.
A Such section permits a plaintiff to present the same suit, if the
Court of the first instance, returns a plaint from defect of
jurisdiction or other causes of like nature, being unable to entertain
it. In the present case, a secured creditor is not withdrawing a
proceeding pending before the Debts Recovery Tribunal under
Section 19 of the Act of 1993 to invoke the provisions of the
B
Act of 2002. Rather the secured creditor is proceeding,
independent of its right to proceed under the Act of 1993, while
invoking the provisions of the Act of 2002. This choice of the
secured creditor to invoke the Act of 2002 is independent of and
despite the pendency of the proceedings under the Act of 1993,
C has to be looked at from the perspective of whether or not such
an action meets the requirement of Section 36 of the Act of 2002,
when the secured creditor is proposing to take a measure under
Section 13(4) of the Act of 2002. Although, a secured creditor,
as held in Transcore (supra), is entitled to take a remedy or a
measure as available in the Act of 2002, despite the pendency
D
of other proceedings, including a proceeding under Section 19
of the Act of 1993, in respect of the self-same cause of action,
in my view, the invocation of such independent right under the
Act of 2002, has to be done within the period of limitation
prescribed under the Limitation Act, 1963 in terms of Section 36
E of the Act of 2002. The Act of 2002 gives an independent right
to a secured creditor to proceed against its financial assets and
in respect of which such asset the secured creditor has security
interest. The right to proceed, however, is subject to the adherence
to the provisions of limitation as enshrined in the Limitation Act,
1963. The provisions of the Limitation Act, 1963 are, therefore,
F
attracted to a proceeding initiated under the Act of 2002. That
being the legal position, the invocation of the provisions of the
Act of 2002 in the facts of the present case, on July 5, 2011,
without there being an extension of the period of limitation by
the act of the parties cannot be sustained.
G
xxx xxx xxx
25. The issues raised are, therefore, answered by holding that,
the initiation of the proceedings by the bank was barred by the
laws of limitation on July 5, 2011 and all proceedings taken by
H the bank consequent upon and pursuant to the notice under
JIGNESH SHAH & ANR. v. UNION OF 697
INDIA & ANR. [R. F. NARIMAN, J.]
Section 13(2) of the Act of 2002 dated July 5, 2011 are quashed A
including such notice.”
15. In Indo Alusys Industries v. Assotech Contracts (India)
Ltd. 2009 (110) DRJ 384, a learned Single Judge of the Delhi High
Court opined that a suit for recovery and a winding up proceeding are
distinct and independent remedies, as follows: B
“12. So far as the objection that the petitioner has filed a suit
disentitling it to maintain the present petition is concerned, it is
well settled that the right to bring a winding up action is statutory
conferred under Section 433 of the Companies Act, 1956.
However, no person has a statutory right to winding up of a C
company incorporated under the Companies Act, 1956. Action
to recover amounts and to winding up of the company are two
wholly distinct and independent remedies. It is not necessary that
every petition under Section 433 of the Companies Act, 1956 ends
up in an order of winding up. Several essential factors as public
D
interest, justice and convenience enter into the consideration
before the prayed for order results. The nature of the defence
and extent of dispute raised by the respondent also impact
adjudication in winding up action. At the same time, limitation for
seeking the remedy of recovery against the company continues
to run. The two remedies are not alternative remedies. More E
often than not, as a matter of abundant caution, parties do not
wait for final decision in one remedy before invoking the other.
xxx xxx xxx
14. In view of the above, mere filing of the suit by the petitioner
F
in order to protect its right and by way of abundant caution
certainly would not prohibit filing of the winding up petition or
preclude the petitioner from maintaining the same.”
16. In Board of Regents of the University of the State of
New York et. al. v. Mary Tomanio 100 S. Ct. 1790, the Supreme
G
Court of the United States of America held that a federal action under
the Civil Rights Act of 1871 was barred by the application of a three-
year New York statute of limitations. What was argued was that the
federal remedy became available only as a consequence of the State
remedy being denied, as the Respondent had commenced a proceeding
in the New York states courts attacking a decision of the Board of H
698 SUPREME COURT REPORTS [2019] 12 S.C.R.
A Regents not to grant a waiver of a licence to practice as a chiropractor.
By November 1975, the appeals in the State proceedings being
exhausted, and the Respondent being denied any relief, the Respondent
instituted an action in the Federal District Court on 25th June, 1976.
The Supreme Court of the United States of America held that the second
action was clearly barred by the law of limitation, being filed three years
B
after the cause of action had arisen. It was held that once the limitation
period started running, it did not stop because a separate and
independent remedy had been pursued in the meanwhile. The Court
held:
“No section of the law provides, however, that the time for filing
C
a cause of action is tolled during the period in which a litigant
pursues a related, but independent cause of action.”
17. In Martiza Alamo-Hornedo v. Juan Carlos Puig and
Jose Perez-Riera 745 F.3d 578, the US Court of Appeals, First Circuit
held on the facts of the case, that a separate and independent action
D
which was otherwise barred by limitation could not be brought within
limitation merely because a prior suit had been filed. The Court held:
“4. The plaintiff also suggests that her prior suit in the Court of
First Instance somehow tolled the statute of limitations. This
suggestion is fanciful.
E
5. To begin, exhaustion of state remedies is not a condition
precedent to the maintenance of a section 1983 action. See Patsy
v. Bd. of Regents, 457 U.S. 496, 516, 102 S.Ct. 2557, 73
L.Ed.2d 172 (1982); Rogers v. Okin, 738 F.2d 1, 5 (1st Cir.
F 1984). Thus, the commencement and pendency of a state
proceeding ordinarily does not toll the limitations period for a
parallel action under Section 1983. See, e.g., Rodriguez-Garcia
v. Municipality of Caguas, 354 F.3d 91, 93 (1st Cir.2004);
Ramirez de Arellano v. Alvarez de Choudens, 575 F.2d 315,
319 (1st Cir. 1978). The plaintiff attempts to parry his thrust by
G noting that, under Puerto Rico law, the statute of limitations can
be “interrupted” by, among other things, suing on the relevant
claim. P.R. Laws Ann. tit. 31, 5303. Once the court action “comes
to a definite end,” the “statute of limitations begins to run anew.”
Rodriguez-Gracia, 354 F.3d at 97 (internal quotation marks
H omitted).
JIGNESH SHAH & ANR. v. UNION OF 699
INDIA & ANR. [R. F. NARIMAN, J.]
*582. The plaintiff’s reliance on this principle elevates hope over A
reason. In order to have the tolling effect desired by the plaintiff,
the complaint in the first action “must assert causes of action
identical to” those asserted in the second action. Id. (internal
quotation marks omitted).
6. The identicality requirement has three facets. The two actions B
“must seek the same form of relief”; they “must be based on
the same substantive claims”; and they “must be asserted against
the same defendants in the same capacities.” Id. at 98. The
plaintiff offers no developed argumentation sufficient to show that
she satisfies these conditions.
C
In all events, it is readily apparent that the plaintiff has not
satisfied the identicality requirement. The first action, brought in
the Court of First Instance, sought the equitable remedies of
reinstatement and back pay; the second action, brought in the
federal district court, sought the legal remedies of compensatory
D
and punitive damages. Thus, it is nose-on-the-face plain that the
two actions did not seek the “same form of relief.”
We hasten to add that this conclusion breaks no new ground.
This court has held, squarely and repeatedly, that under Puerto
Rico law, “seeking only equitable relief does not toll the statute
E
of limitations where the subsequent complaint… seeks
damages.” Nieves-Vega v. Ortiz-Quinones, 443 F.3d 134, 137
(1st Cir. 2006) (collecting cases).
In view of the plaintiff’s failure to satisfy the first facet of the
identicality requirement, we need not inquire into the other two
F
facets. Puerto Rico law is pellucid that a plaintiff who seeks to
interrupt the running of a statute of limitations on this basis must
satisfy all three facets of the identicality requirement. See, e.g.,
Santana-Castro v. Toledo-Davila, 579 F.3d 109, 116 (1st Cir.
2009); Nieves-Vega, 443 F.3d at 137-38.
G
That ends this aspect of the matter. When all is said and done,
the plaintiff’s decision to sit idly by while the proceedings in the
Court of First Instance unfolded dooms her tardy attempt to assert
a federal claim. Although waiting for the Commonwealth court’s
ruling may have served to strengthen the plaintiff’s belief that
her firing was illegal, there is no requirement that a period who H
700 SUPREME COURT REPORTS [2019] 12 S.C.R.
A wishes to pursue a Section 1983 claim premised on an allegedly
wrongly termination of employment await an independent finding
that her dismissal was unlawful. Consequently, the plaintiff’s
election to await a ruling by the Court of First Instance does not
justify her failure to bring her federal claim within the time
allotted by statute.”
B
18. In Re Karnos Property Co. Ltd. (1989) 5 B.C.C. 14, a
learned Single Judge of the Chancery Division (Companies Court) held
that a local authority’s petition to wind up a company for non-payment
of rates was barred by the law of limitation, being presented more than
six years after the cause of action arose. The fact that the rate
C demanded had been the subject of distress warrants did not in any
manner impact the limitation period for the winding up petition. It was
thus held:
“Applying those words to the petition proceedings now in train it
seems that the cause of the proceedings arose at the latest when
D the company failed to pay the latest rate demand on 1 April 1981.
That is more than six years before the presentation of the petition.
Accordingly I conclude that the petition must be dismissed
because it is founded on rates unpaid for more than six years.
In other words a local authority petition for non-payment of rates
E is subject to the provisions of the Limitation Acts.
Mr. Acton for the local authority conceded, as I understand, that
rates unpaid for six years and never the subject of a distress
warrant were irrecoverable in any way; so that the local authority
ceases to be a creditor and thus may not petition. But, said Mr.
F Acton, once a distress warrant has been obtained it remains
always available for execution and thus preserves the local
authority its character as a creditor and ever able to petition. I
do not accept this submission. If one assumes that the two
distress warrants issued in this case remain available to the local
authority, I do not think it follows that the provisions of the
G Limitation Acts that I have mentioned do not operate to stop the
presentation of a petition. The effect of Section 2(1) of the 1939
Act (or Section 9(1) of the 1980 Act) is that a petition may not
be presented if six years have passed since the rates were
demanded. There is nothing there to qualify the position if a
H distress warrant happens to be current. A petition lies not because
JIGNESH SHAH & ANR. v. UNION OF 701
INDIA & ANR. [R. F. NARIMAN, J.]
a distress warrant has been or may be issued but because a local A
authority is a “creditor” as that word is and has been used in
the Companies Acts (see the North Bucks case).
The remedies by way of distress and petition are separate and
distinct.”
19. The aforesaid judgments correctly hold that a suit for B
recovery based upon a cause of action that is within limitation cannot
in any manner impact the separate and independent remedy of a winding
up proceeding. In law, when time begins to run, it can only be extended
in the manner provided in the Limitation Act. For example, an
acknowledgement of liability under Section 18 of the Limitation Act C
would certainly extend the limitation period, but a suit for recovery,
which is a separate and independent proceeding distinct from the remedy
of winding up would, in no manner, impact the limitation within which
the winding up proceeding is to be filed, by somehow keeping the debt
alive for the purpose of the winding up proceeding.
D
20. Shri Kaul, however, relied heavily on the judgment of a Single
Judge of the Bombay High Court reported as Re: Messrs: Bhimji
Nanji and Co. (1969) Mh.L.J. 827. That case arose under the
Presidency-towns Insolvency Act, 1909, the question raised being as
follows:
E
“4. Whether the debt on the basis of which the petition for
adjudication is presented and an adjudication order is sought
should be a subsisting debt at the date of the hearing of the
petition or is it enough that it subsisted at the date of the
presentation of the petition?”
F
Section 13 of the Presidency-towns Insolvency Act, 1909 laid
down what factors are required to be proved by a petitioning-creditor
at the hearing of the petition before the Court. Section 13(2) of the
said Act, which fell for consideration before the Bombay High Court,
is set out hereinbelow:
G
“At the hearing the Court shall require proof of –
(a) the debt of the petitioning creditor, and
(b) the act of insolvency or, if more than one act of insolvency
is alleged in the petition, some one of the alleged acts of
insolvency.” H
702 SUPREME COURT REPORTS [2019] 12 S.C.R.
A The observation that was made by the Court which is relied upon
heavily by Shri Kaul is contained in paragraph 9, which is set out
hereinbelow:
“9. Mr. Shah urged that if this view were accepted by the Court
it would cause great hardship to the creditor. Once an insolvency
B petition is presented by a creditor, he normally expects that the
adjudication order would be passed at the hearing of his petition
and simply because the hearing of the petition is delayed not for
any default on his part but say on account of the exigencies of
the Court work the creditor will have to meet the fate which he
may not have thought of or contemplated, if in the meantime the
C debt becomes barred by limitation. I do not see any hardship
arising to the creditor as suggested by Mr. Shah, for it would be
open to the creditor or rather it would be his duty to see that he
keeps the debt alive either by means of an acknowledgement or
part payment or by filing a suit in respect thereof in a proper
court well within the period of limitation, but to my mind, it is
D
clear that mere pendency of an insolvency petition without
anything more cannot have the effect of saving the limitation
prescribed by the Indian Limitation Act.”
The context in which the learned Single Judge made an
observation that the filing of a suit within limitation would keep the debt
E alive, is in the context of Section 13 of the Presidency-towns Insolvency
Act, 1909 - which requires that the debt of the petitioning creditor should
be alive even at the hearing of the insolvency petition. Obviously, if at
the hearing of the petition, the debt was time-barred, the stringent result
of insolvency of the individual concerned would not follow. It is in this
F context that the learned Single Judge held that a debt would be
subsisting at the date of hearing of the insolvency petition if a suit was
filed to recover it within the period of limitation. The context of Section
13 of the Presidency-towns Insolvency Act, 1909 is far removed from
the present context, in which what has to be seen is whether a winding
up proceeding has been filed within the limitation period provided. In
G the facts of the present case, no question as to subsistence of a live
debt at the hearing of a winding up petition is at all involved. This case
is, therefore, wholly distinguishable.
21. Shri Kaul then relied strongly on the rationale for laws of
limitation generally, which was set out in Rajender Singh and Ors.
H v. Santa Singh and Ors. (1973) 2 SCC 705 as follows:
JIGNESH SHAH & ANR. v. UNION OF 703
INDIA & ANR. [R. F. NARIMAN, J.]
“17. The policy underlying statutes of limitation, spoken of as A
statutes of “repose”, or of “peace” has been thus stated in
Halsbury’s Laws of England Vol. 24, p. 181 (para 330):
“330. Policy of Limitation Acts.—The Courts have expressed
at least three differing reasons supporting the existence of
statutes of limitation, namely: (1) that long dormant claims have B
more of cruelty than justice in them, (2) that a defendant might
have lost the evidence to disprove a stale claim, and (3) that
persons with good causes of actions should pursue them with
reasonable diligence.”
18. The object of the law of limitation is to prevent disturbance C
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 laches.”
These observations are apposite in the context of the facts of
the present case. It is clear that IL&FS pursued with reasonable D
diligence the cause of action which arose in August, 2012 by filing a
suit against La-Fin for specific performance of the Letter of
Undertaking in June, 2013. What has been lost by the aforesaid party’s
own inaction or laches, is the filing of the Winding up Petition long after
the trigger for filing of the aforesaid petition had taken place; the trigger
being the debt that became due to IL&FS, in repayment of which default E
has taken place.
22. At this stage, it is necessary to set out Section 433(e) and
Section 434 of the Companies Act, 1956, which read as follows:
“433. Circumstances in which company may be wound up
by Tribunal.- A company may be wound up by the Tribunal,- F
xxx xxx xxx
(e) if the company is unable to pay its debts;”
“434. Company when deemed unable to pay its debts.-(1)
A company shall be deemed to be unable to pay its debts- G
(a) if a creditor, by assignment or otherwise, to whom the
company is indebted in a sum exceeding one lakh rupees
then due, has served on the company, by causing it to be
delivered at its registered office, by registered post or
otherwise, a demand under his hand requiring the company H
704 SUPREME COURT REPORTS [2019] 12 S.C.R.
A to pay the sum so due and the company has for three
weeks thereafter neglected to pay the sum, or to secure or
compound for it to the reasonable satisfaction of the creditor;
(b) if execution or other process issued on a decree or order if
any Court or Tribunal in favour of a creditor of the company
B is returned unsatisfied in whole or in part; or
(c) if it is proved to the satisfaction of the Tribunal that the
company is unable to pay its debts, the Tribunal shall take
into account the contingent and prospective liabilities of the
company.
C (2) The demand referred to in clause (a) of sub-section (1) shall
be deemed to have been duly given under the hand of the creditor
if it is signed by any agent or legal adviser duly authorised on
his behalf, or in the case of a firm if it is signed by any such
agent or legal adviser or by any member of the firm.”
D A reading of the aforesaid provisions would show that the starting
point of the period of limitation is when the company is unable to pay
its debts, and that Section 434 is a deeming provision which refers to
three situations in which a Company shall be deemed to be “unable to
pay its debts” under Section 433(e). In the first situation, if a demand
is made by the creditor to whom the company is indebted in a sum
E exceeding one lakh then due, requiring the company to pay the sum so
due, and the company has for three weeks thereafter “neglected to pay
the sum”, or to secure or compound for it to the reasonable satisfaction
of the creditor. “Neglected to pay” would arise only on default to pay
the sum due, which would clearly be a fixed date depending on the
F facts of each case. Equally in the second situation, if execution or other
process is issued on a decree or order of any Court or Tribunal in favour
of a creditor of the company, and is returned unsatisfied in whole or in
part, default on the part of the debtor company occurs. This again is
clearly a fixed date depending on the facts of each case. And in the
third situation, it is necessary to prove to the “satisfaction of the
G Tribunal” that the company is unable to pay its debts. Here again, the
trigger point is the date on which default is committed, on account of
which the Company is unable to pay its debts. This again is a fixed
date that can be proved on the facts of each case. Thus, Section 433(e)
read with Section 434 of the Companies Act, 1956 would show that
H the trigger point for the purpose of limitation for filing of a winding up
JIGNESH SHAH & ANR. v. UNION OF 705
INDIA & ANR. [R. F. NARIMAN, J.]
petition under Section 433(e) would be the date of default in payment A
of the debt in any of the three situations mentioned in Section 434.
23. Shri Kaul relied upon several well-known judgments, which
lay down the law under Section 433 and 434 of the Companies Act,
1956. He relied upon M/s Madhusudan Gordhandas & Co. v.
Madhu Woollen Industries Pvt. Ltd. (1971) 3 SCC 632, wherein B
in a case of a winding up petition filed under Section 433(e), the High
Court had rejected the claim of the Appellant to wind up the Company
as creditors of the Company. Unlike the present case, the Appellant
therein gave no statutory notice to raise any presumption of inability to
pay debts. In this context, this Court held:
C
“20. Two rules are well settled. First, if the debt is bona fide
disputed and the defence is a substantial one, the court will not
wind up the company. The court has dismissed a petition for
winding up where the creditor claimed a sum for goods sold to
the company and the company contended that no price had been
agreed upon and the sum demanded by the creditor was D
unreasonable. (See London and Paris Banking Corporation
[(1874) LR 19 Eq 444] ) Again, a petition for winding up by a
creditor who claimed payment of an agreed sum for work done
for the company when the company contended that the work had
not been properly was not allowed. (See Re. Brighton Club and
Horfold Hotel Co. Ltd. [(1865) 35 Beav 204] ) E
21. Where the debt is undisputed the court will not act upon a
defence that the company has the ability to pay the debt but the
company chooses not to pay that particular debt, see Re. A
Company. [94 SJ 369] Where however there is no doubt that
the company owes the creditor a debt entitling him to a winding F
up order but the exact amount of the debt is disputed the court
will make a winding up order without requiring the creditor to
quantify the debt precisely See Re Tweeds Garages Ltd. [1962
Ch 406] The principles on which the court acts are first that the
defence of the company is in good faith and one of substance,
secondly, the defence is likely to succeed in point of law and G
thirdly the company adduces prima facie proof of the facts on
which the defence depends.”
The Court then stated that as the making of a winding up order
is discretionary, the Court will ordinarily consider the wishes of all the
creditors, and if they are opposed to winding up the company, the Court H
706 SUPREME COURT REPORTS [2019] 12 S.C.R.
A may, in its discretion, refuse such order. What was relied upon strongly
by Shri Kaul was paragraph 29, in which the Court held:
“29…In determining whether or not the substratum of the
company has gone, the objects of the company and the case of
the company on that question will have to be looked into. In the
B present case the company alleged that with the proceeds of sale
the company intended to enter into some other profitable business.
The mere fact that the company has suffered trading losses will
not destroy its substratum unless there is no reasonable prospect
of it ever making a profit in the future, and the court is reluctant
to hold that it has no such prospect. (See Re Suburban Hotel
C Co. [(1867) 2 Ch App 737] and Davis and Co. v. Brunswick
(Australia) Ltd. [(1936) 1 AER 299])…The company has not
abandoned objects of business. There is no such allegation or
proof. It cannot in the facts and circumstances of the present
case be held that the substratum of the company is gone. Nor
can it be held in the facts and circumstances of the present case
D
that the company is unable to meet the outstandings of any of
its admitted creditors. The company has deposited in court the
disputed claims of the appellants. The company has not ceased
carrying on its business. Therefore, the company will meet the
dues as and when they fall due. The company has reasonable
E prospect of business and resources.”
24. According to Shri Kaul, it was not possible for his client to
approach the High Court with a winding up petition as on the date on
which he filed the suit for specific performance, because La-Fin (i.e.
the Company sought to be wound up), could not be said to have lost its
F substratum as on such date. It was for this reason that he approached
the winding up Court in 2016, when the assets of La-Fin, which, as of
2013 were worth over INR 1000 crores, had in 2016 become only worth
INR 200 crores.
25. This judgment does not take Shri Kaul’s argument any further.
Nowhere in the Winding up Petition is it alleged that the company sought
G
to be wound-up has lost its substratum, in the sense that there is no
reasonable prospect of it ever making a profit in the future, nor can it
be said that the company had abandoned its business and is, therefore,
unable to meet the outstandings owed by it. On the other hand, what
emerges from this judgment (and paragraph 21 therein in particular), is
H that it is not open for a company to say that a debt is undisputed, that
JIGNESH SHAH & ANR. v. UNION OF 707
INDIA & ANR. [R. F. NARIMAN, J.]
it has ability to pay the debt, but will not pay the debt. Equally, where A
a debt is clearly owed, but the exact amount of debt is disputed, the
company will be held to be unable to pay its debts. What has to be
seen in each case is whether the debt is bona fide disputed. If so,
without more, a winding up petition would then be dismissed. One other
thing must be noticed at this stage. The trigger for limitation is the
inability of a company to pay its debts. Undoubtedly, this trigger occurs B
when a default takes place, after which the debt remains outstanding
and is not paid. It is this date alone that is relevant for the purpose of
triggering limitation for the filing of a winding up petition. Though it is
clear that a winding up proceeding is a proceeding ‘in rem’ and not a
recovery proceeding, the trigger of limitation, so far as the winding up C
petition is concerned, would be the date of default. Questions as to
commercial solvency arise in cases covered by Sections 434(1)(c) of
the Companies Act, 1956, where the debt has first to be proved, after
which the Court will then look to the wishes of the other creditors and
commercial solvency of the company as a whole. The stage at which
the Court, therefore, examines whether the company is commercially D
insolvent is once it begins to hear the winding up petition for admission
on merits. Limitation attaches insofar as petitions filed under Section
433(e) are concerned at the stage that default occurs for, it is at this
stage that the debt becomes payable. For this reason, it is difficult to
accept Shri Kaul’s submission that the cause of action for the purposes
E
of limitation would include the commercial insolvency or the loss of
substratum of the company.
26. The next judgment referred to and relied upon by Shri Kaul
is Pradeshiya Industrial & Investment Corporation of U.P. v.
North India Petrochemicals Ltd. and Anr. (1994) 3 SCC 348. In
F
this case, it was found that Dalmia Industries had resorted to arbitration
proceedings, in which there was a substantial dispute raised on the
amount claimed. The passage strongly relied upon by Shri Kaul is set
out hereinbelow:
“27. What then is inability when the section says “unable to pay
G
its dues”? That should be taken in the commercial sense. In that,
it is unable to meet current demands. As stated by William James,
V.C. it is “plainly and commercially insolvent — that is to say,
that its assets are such, and its existing liabilities are such, as to
make it reasonably certain — as to make the Court feel satisfied
— that the existing and probable assets would be insufficient to H
708 SUPREME COURT REPORTS [2019] 12 S.C.R.
A meet the existing liabilities”. (In European Life Assurance
Society, Re [LR (1869) 9 Eq 122] ; V.V. Krishna Iyer & Sons
v. New Era Mfg. Co. Ltd. [(1965) 35 Comp Cas 410 : (1965) 1
Comp LJ 179 (Ker)])”
This passage is in the context of an order under 433(e) of the
B Companies Act, 1956 being discretionary, which is referred to in the
preceding paragraph 25. As stated hereinabove, the facts as to
commercial insolvency are to be pleaded and proved at the admission
stage of the winding up petition; the trigger for the winding up proceeding
for limitation purposes, as has been stated hereinabove, being the date
of default.
C
27. Shri Kaul then relied upon Mediquip Systems (P) Ltd. v.
Proxima Medical System GMBH (2005) 7 SCC 42 and in particular,
paragraphs 18 and 23 thereof, which state as follows:
“18. This Court in a catena of decisions has held that an order
D under Section 433(e) of the Companies Act is discretionary. There
must be a debt due and the company must be unable to pay the
same. A debt under this section must be a determined or a
definite sum of money payable immediately or at a future date
and that the inability referred to in the expression “unable to pay
its debts” in Section 433(e) of the Companies Act should be taken
E
in the commercial sense and that the machinery for winding up
will not be allowed to be utilised merely as a means for realising
debts due from a company.
xxx xxx xxx
F 23. The Bombay High Court has laid down the following
principles in Softsule (P) Ltd., Re [(1977) 47 Comp Cas 438
(Bom)] : (Comp Cas pp. 443-44)
Firstly, it is well settled that a winding-up petition is not legitimate
means of seeking to enforce payment of a debt which is bona
G fide disputed by the company. If the debt is not disputed on some
substantial ground, the court/Tribunal may decide it on the petition
and make the order.
Secondly, if the debt is bona fide disputed, there cannot be
“neglect to pay” within the meaning of Section 433(1)(a) of the
H Companies Act, 1956. If there is no neglect, the deeming provision
JIGNESH SHAH & ANR. v. UNION OF 709
INDIA & ANR. [R. F. NARIMAN, J.]
does not come into play and the winding up on the ground that A
the company is unable to pay its debts is not substantiated.
Thirdly, a debt about the liability to pay which at the time of the
service of the insolvency notice, there is a bona fide dispute, is
not “due” within the meaning of Section 434(1)(a) and non-
payment of the amount of such a bona fide disputed debt cannot B
be termed as “neglect to pay” the same so as to incur the liability
under Section 433(e) read with Section 434(1)(a) of the
Companies Act, 1956.
Fourthly, one of the considerations in order to determine whether
the company is able to pay its debts or not is whether the C
company is able to meet its liabilities as and when they accrue
due. Whether it is commercially solvent means that the company
should be in a position to meet its liabilities as and when they
arise.”
28. The Bombay High Court judgment referred to in paragraph D
23 of the judgment above states the law on winding up petitions filed
under Section 433(a) of the Companies Act, 1956 correctly. The primary
test is set out in paragraph 1, which is that a winding up petition is not
a legitimate means of seeking to enforce payment of a debt which is
bona fide disputed by the Company. Absent such dispute, the petition E
may be admitted. Equally, where the debt is bona fide disputed, there
cannot be ‘neglect to pay’ within the meaning of Section 434(1)(a) of
the Companies Act, 1956 so that the deeming provision then does not
come into play. Also, the moment there is a bona fide dispute, the debt
is then not ‘due’. The High Court also correctly appreciates that whether
the company is commercially solvent is one of the considerations in order F
to determine whether the company is able to pay its debts or not.
29. Even on the facts of this case, the Winding up Petition alleges
that the ultimatum to the Respondent company asserting that the
Respondent company was legally obliged to purchase the requisite
G
shares in accordance with the terms of the Letter of Undertaking was
on 7th January, 2013. By this date at the very latest, the cause of action
for filing a petition under Section 433(e) certainly arose. Also, as has
been correctly pointed out by Dr. Singhvi, the statutory notice given on
3rd November, 2015 does not refer to any facts as to the commercial
insolvency of La-Fin. The statutory notice only refers to the suit H
710 SUPREME COURT REPORTS [2019] 12 S.C.R.
A proceedings and attachment by the EOW which had taken place long
before in December 2013. Factually, therefore, no basis is laid for the
legal contentions argued before us by Shri Kaul.
30. In the Winding up Petition itself, what is referred to is the
fall in the assets of La-Fin to being worth approximately INR 200 crores
B as of October, 2016, which again does not correlate with 3rd November,
2015, being the date on which the statutory notice was itself issued.
This again is only for the purpose of appointing an Officer of the Court
as Official Liquidator in order to manage the day-to-day affairs and
otherwise secure and safeguard the assets of the Respondent company.
There is no averment in the petition that thanks to these or other facts
C the Company’s substratum has disappeared, or that the Company is
otherwise commercially insolvent. It is clear therefore that even on
facts, the company’s substratum disappearing or the commercial
insolvency of the company has not been pleaded. Whereas, in Form-1,
upon transfer of the winding up proceedings to the NCLT, what is
D correctly stated is that the date of default is 19th August, 2012; making
it clear that three-years from that date had long since elapsed when
the Winding up Petition under Section 433(e) was filed on 21st October,
2016.
31. We therefore allow Civil Appeal (Diary No. 16521 of 2019)
E and dispose of the Writ Petition (Civil) No.455 of 2019 by holding that
the Winding up Petition filed on 21st October, 2016 being beyond the
period of three-years mentioned in Article 137 of the Limitation Act is
time-barred, and cannot therefore be proceeded with any further.
Accordingly, the impugned judgment of the NCLAT and the judgment
of the NCLT is set aside.
F
SLP(C) (Diary No.13468 of 2019) & T.P. (C) No.817 of 2019
32. In view of the aforesaid, nothing survives insofar as Special
Leave Petition (Diary No.13468 of 2019) and Transfer Petition (Civil)
No.817 of 2019 are concerned, and they are accordingly disposed of
G as having become infructuous.
Nidhi Jain Matters disposed of.
H
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