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Sesh Nath Singh & Anr. v. Baidyabati Sheoraphuli Co-operative Bank Ltd. & Anr.

Civil Appeal · 2021 INSC 199Decided 22 Mar 2021
Civil Appeal No. 9198 of 2019
Justice Indira Banerjee · Justice Hemant Gupta

Background

A cooperative bank gave a cash-credit loan to a company (the corporate debtor) in 2012, which went into default. The bank tried to recover the dues first by invoking the SARFAESI Act, but the company got an interim order from the Calcutta High Court restraining the bank's SARFAESI action, on the ground that the bank, being a cooperative bank, may not be entitled to use that law at all. While that writ petition was still pending in the High Court, the bank instead filed an application under Section 7 of the IBC before the NCLT to start insolvency proceedings against the company. The company's representative (the appellant) argued this application was filed beyond the three-year limitation period and should be thrown out, but both the NCLT and the NCLAT allowed the insolvency case to proceed.

Decision Breakdown

The Supreme Court held that applications under Section 7 of the IBC are governed by a three-year limitation period under Article 137 of the Limitation Act (running from the date of default), but that delay can still be condoned under Section 5 of the Limitation Act even without a separate formal application for condonation, so long as sufficient cause is shown on the record. It further held that Section 14 of the Limitation Act, which excludes time spent bona fide pursuing a remedy in the wrong forum, does apply to IBC proceedings, and the word "Court" in Section 14 should be read broadly to include tribunals and even SARFAESI forums. Crucially, the Court clarified that the benefit of Section 14 exclusion is available even while the earlier proceeding (the SARFAESI-related writ petition) is still pending and has not yet terminated, not only after it ends. Applying this, the time the bank spent pursuing the SARFAESI route and defending the High Court litigation was validly excluded, making the Section 7 application timely. The appeal was accordingly dismissed and the insolvency proceedings against the company were allowed to continue.

Lesson Learnt

A creditor (or any party) who has been genuinely and diligently pursuing a parallel legal remedy in good faith does not automatically lose the right to later invoke the IBC on limitation grounds: courts will exclude that period under Section 5/Section 14 of the Limitation Act even if the earlier proceeding hasn't yet concluded, provided there is no bad faith or negligence.

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

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