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Jignesh Shah & Anr. v. Union of India & Anr.

Writ Petition (Civil) · 2019 INSC 1080Decided 25 Sept 2019
Writ Petition (Civil) No. 455 of 2019
Justice Rohinton Fali Nariman · Justice R. Subhash Reddy · Justice Surya Kant

Background

IL&FS had a letter of undertaking from La-Fin Financial Services (a group company of MCX) to buy back certain shares, which La-Fin refused to honour in August 2012, leading IL&FS to sue for specific performance/damages in the Bombay High Court. In 2016, IL&FS separately filed a winding-up petition against La-Fin, which, after the Insolvency and Bankruptcy Code came into force, got automatically converted into an insolvency application before the National Company Law Tribunal (NCLT), which admitted it in 2018; the National Company Law Appellate Tribunal (NCLAT) upheld that admission, holding the claim was not time-barred because it was filed within three years of the Code itself coming into force. La-Fin's shareholders, Jignesh Shah and Pushpa Shah, challenged this before the Supreme Court, arguing the claim was barred by limitation long before the Code even existed.

Decision Breakdown

The Supreme Court held that the general law of limitation (the three-year period under Article 137 of the Limitation Act) applies to insolvency applications under Section 7 of the Code, and that this period runs from the actual date of default, here, August 2012, when La-Fin refused to honour its undertaking, not from the date the Code came into force. Since the winding-up petition (later treated as the Section 7 application) was filed only in October 2016, more than three years after the date of default stated in IL&FS's own filings, the claim was already time-barred and could not be revived simply because the Code had come into existence in the meantime. The Court therefore allowed the connected civil appeal, set aside the NCLAT and NCLT orders, and held the proceedings could not continue as they were filed beyond the limitation period.

Lesson Learnt

A creditor cannot use the Insolvency and Bankruptcy Code to revive a monetary claim that was already time-barred under ordinary limitation law before the Code came into force: the three-year limitation clock starts running from the actual date of default, not from whenever a new law creating a fresh remedy happens to be enacted.

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

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