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Supreme Court Stays NCLAT order in Application of Limitation Act to Insolvency Code

The order of the NCLAT stated that the provisions of the Limitation Act do not apply to the proceedings of the Corporate Insolvency Resolution Process as under the Insolvency and Bankruptcy Code
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The issue is raised whether the Limitation Act will be applicable to the proceedings under the Insolvency and Bankruptcy Code. This issue will be decided by the Supreme Court. Justice Rohinton Fali Nariman and Justice Navin Sinha have issued a notice in an appeal filed against the order of National Company Law Appellate Tribunal (NCLAT).

The appeal was filed against the order of NCLAT dated 7 November 2017 by BK Educational Services Private Limited. The order of the NCLAT stated that the provisions of the Limitation Act do not apply to the proceedings of the Corporate Insolvency Resolution Process as under the Insolvency and Bankruptcy Code.

However, it was contended by the applicant that Supreme Court through its various judgments has held that the Limitation Act, 1963 fixes a time and lifespan in which a legal remedy can be claimed and is based upon the public policy.
The appellant submitted that the Limitation Act is applicable to the proceedings before the NCLAT as the constitution of NCLAT is not contrary to the special stature of the Act.

It was further submitted by the appellant that the Section 433 of the Companies Act also provides that the application of limitation act is to be placed in the proceedings before the National Companies Law Tribunal. 

It was further submitted by the appellant that the Insolvency and Bankruptcy Code expressly does not include the applicability of Section 433 and hence, it can be concluded that the Section 433 of the Companies Act is applicable to the proceedings under the Insolvency and Bankruptcy Code.

The appellant was represented by Dua Associates and they pointed out that NCLAT has committed an error in its order by stating that for initiating corporate insolvency resolution process under section 7 of the Insolvency and Bankruptcy Act has occurred from the date of enforcement of the Insolvency and Bankruptcy Act i.e., 1.12.2016.

The appellants further submitted that the reasoning given by the NCLAT of its order will lead to a situation wherein the cases of more than a fifty years ago related to default in respect of debt a party will be in a position to initiate the proceedings under the Insolvency and Bankruptcy Code for Corporate Insolvency Resolution Process.

The Supreme Court has stayed the order of NCLAT and has also issued the notice for the same.

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Reviewed by:
Mehak Sharma
Published on 12-Jan-2018
1,325 views