In Brief
A financial creditor (cooperative bank) filed an application under Section 7 of the Insolvency and Bankruptcy Code 2016 seeking initiation of corporate insolvency resolution against a borrower for default on a cash credit facility. The borrower challenged the application as time-barred, arguing it was filed over five years after the account was declared a non-performing asset in March 2013. The High Court had stayed proceedings under the SARFAESI Act (a securitization law the bank initially relied on) for want of jurisdiction. The Supreme Court held that the three-year limitation period under the Limitation Act 1963 applies to IBC applications, but time spent in bona fide proceedings under the SARFAESI Act before the High Court stayed them could be excluded under Section 14 (exclusion for proceedings in wrong forum). The Court rejected a recent NCLAT judgment that Section 14 did not apply to IBC cases. Since the bank had initiated SARFAESI proceedings within three years of default and the subsequent IBC application was filed while those proceedings were stayed, the application was within the overall three-year limit. The appeal was accordingly dismissed.
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