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M/S. Tech Sharp Engineers Pvt. Ltd. vs Sanghvi Movers Limited

Civil Appeal · 2022 INSC 986Decided 19 Sept 2022
Civil Appeal No. 296 of 2022
Indira Banerjee · J.K. Maheshwari · M.M. Sundresh

Background

Sanghvi Movers had hired out a crane to Tech Sharp Engineers for a project, and Tech Sharp fell behind on payment of hire charges of about Rs. 38.84 lakh. After years of correspondence, a winding-up petition, and other proceedings, Sanghvi Movers eventually filed an application under Section 9 of the IBC before the NCLT to start insolvency proceedings against Tech Sharp. The NCLT dismissed the application as time-barred, since the last written acknowledgment of the debt by Tech Sharp was in November 2013: more than three years before the IBC application was filed. The NCLAT reversed the NCLT, reasoning that the right to apply under the IBC only "accrued" when the IBC itself came into force in December 2016, so the application was within time.

Decision Breakdown

The Supreme Court held that the NCLAT's reasoning was wrong. Limitation under Article 137 of the Limitation Act runs from the date of default (or the last acknowledgment of the debt), not from the date the IBC came into force. The Court had already settled this in B.K. Educational Services vs Parag Gupta. Since Tech Sharp's last acknowledgment of the debt was in November 2013 and the last payment was made in June 2013, the three-year limitation period had expired well before the Section 9 application was filed. The pendency of the earlier winding-up petition in the Madras High Court did not extend this limitation period, because the winding-up petition was never actually pursued to conclusion and does not "save" limitation for a differently-framed IBC proceeding. The NCLAT's order was therefore set aside, and the Court clarified that Sanghvi Movers could still pursue any other legal remedy that remained available.

Lesson Learnt

In IBC cases, the three-year limitation clock starts running from the date of default or the last written acknowledgment of the debt, not from when the IBC itself came into force, so creditors must act (or obtain a fresh acknowledgment) well within three years of default, even if they are simultaneously pursuing another remedy like a winding-up petition.

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

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