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Company & Insolvency LawSupreme Court of India

Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Ltd. & Anr.

Civil Appeal · 2019 INSC 1051Decided 18 Sept 2019
Civil Appeal No. 4952 of 2019
Justice Rohinton Fali Nariman · Justice R. Subhash Reddy · Justice Surya Kant

Background

A borrower account was declared a Non-Performing Asset (NPA) in 2011, and the State Bank of India later assigned the debt to an asset reconstruction company. After earlier debt-recovery proceedings failed on maintainability grounds, the assignee company filed an application under Section 7 of the Insolvency and Bankruptcy Code (IBC) in 2017 to recover the debt, now worth about Rs. 124 crore. Both the NCLT and NCLAT held the application was within time, reasoning that limitation ran either for 12 years from when the money became due, or only from the date the IBC itself came into force in December 2016; the original debtor challenged this before the Supreme Court.

Decision Breakdown

The Supreme Court held that Article 62 of the Limitation Act (a 12-year period), which applies only to civil suits, could not apply to an "application" filed under Section 7 of the IBC; instead, the residuary Article 137 (a 3-year period running from when the right to apply first accrues) governed. Since the right to apply accrued on the date of the NPA declaration in July 2011, the three-year limitation period expired long before the Section 7 application was filed in 2017, making it time-barred. The Court also rejected the argument that the IBC's commercial purpose justified a different, more lenient reading, holding that the law of limitation must be applied as written, with no "equity" about limitation periods, and set aside both the NCLT's and NCLAT's judgments.

Lesson Learnt

An application to initiate insolvency proceedings under the IBC must be filed within three years of the date of default (such as an account being declared an NPA), not whenever convenient for the creditor: stale debts cannot be revived simply by invoking the IBC.

Gaurav Hargovindbhai Dave v. Asset Reconstruction Company (India) Ltd. & Anr. – Legal Case Shots | LegalAware