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Babulal Vardharji Gurjar v. Veer Gurjar Aluminium Industries Pvt. Ltd.

Civil Appeal · 2020 INSC 490Decided 14 Aug 2020
Civil Appeal No. 6347 of 2019
Justice A.M. Khanwilkar · Justice Dinesh Maheshwari

Background

A financial creditor (an asset reconstruction company that had taken over a bank loan) sought to start insolvency proceedings against a company, Veer Gurjar Aluminium Industries, for defaulting on its loan. The company's director challenged this, arguing the creditor's application was filed too late, well beyond the three-year limitation period counted from when the loan account was declared a non-performing asset (NPA) years earlier. Both the National Company Law Tribunal and the Appellate Tribunal had allowed the insolvency case to proceed, rejecting the limitation argument.

Decision Breakdown

The Supreme Court held that applications to start insolvency proceedings under Section 7 of the IBC are governed by a three-year limitation period running from the date of default (treated as the date the account was declared NPA), and that merely because a debt is acknowledged in a company's balance sheets or other circumstances does not automatically extend that period unless they independently qualify as a valid "acknowledgment of debt" that restarts the clock. On the facts, the Court found the application was indeed filed beyond the limitation period and was therefore not maintainable. It set aside the orders of both tribunals and rejected the insolvency application, while clarifying that other independent legal proceedings against the company (which had been frozen due to the moratorium) could now resume.

Lesson Learnt

Creditors must act within the three-year limitation period to file for insolvency proceedings; the Insolvency and Bankruptcy Code is a recovery mechanism for live claims, not a tool to revive debts that have already gone time-barred.

Official source (sci.gov.in)View Judgment (PDF)

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