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Sagar Sharma & Anr. v. Phoenix ARC Pvt. Ltd. & Anr.

Civil Appeal · 2019 INSC 1098Decided 30 Sept 2019
Civil Appeal No. 7673 of 2019
Justice Rohinton Fali Nariman · Justice V. Ramasubramanian

Background

An application was filed under Section 7 of the Insolvency and Bankruptcy Code seeking to initiate insolvency proceedings based on an old mortgage-backed debt. The appellate tribunal (NCLAT) below had held that the three-year limitation period only started running from 1 December 2016, the date the IBC itself came into force, and had also wrongly applied Article 62 of the Limitation Act (meant for mortgage-enforcement suits) instead of the general Article 137 that applies to IBC applications. The appellants challenged this reasoning before the Supreme Court.

Decision Breakdown

The Supreme Court held that the NCLAT's judgment directly contradicted the Court's own earlier ruling in B.K. Educational Services v. Parag Gupta (2018), which had already settled that the IBC's commencement date is irrelevant to triggering limitation, and that Article 137 of the Limitation Act (a three-year general limitation period), not Article 62, governs Section 7 applications. Because Article 141 of the Constitution requires lower tribunals to follow the Supreme Court's rulings in letter and spirit, the Court set aside the NCLAT's judgment and sent the matter back for fresh determination strictly applying Article 137, while keeping the underlying NCLT order stayed in the meantime.

Lesson Learnt

Tribunals cannot sidestep binding Supreme Court precedent on limitation; for IBC Section 7 applications, the clock for limitation runs under the general three-year period of Article 137 of the Limitation Act, not from the date the IBC came into force and not under special mortgage-related limitation provisions.

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

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