LEGAL ISSUE: Whether the delay in filing a claim by a creditor in the Corporate Insolvency Resolution Process (CIRP) can be condoned, considering the Supreme Court’s orders on extending limitation periods during the COVID-19 pandemic.
CASE TYPE: Insolvency Law
Case Name: GPR Power Solutions Private Limited vs. Mr. Supriyo Chaudhuri (RP Of Rohit Ferro Tech Limited) and Ors.
Judgment Date: 29 November 2021
Introduction
Date of the Judgment: 29 November 2021
Citation: [Not Available in Source]
Judges: Indira Banerjee, J. and J.K. Maheshwari, J.
Can a creditor’s claim in an insolvency proceeding be rejected solely on the grounds of delay, especially when the delay occurred during the COVID-19 pandemic, and the Supreme Court had extended limitation periods? The Supreme Court of India recently addressed this critical question in a case involving GPR Power Solutions Private Limited. The core issue was whether the National Company Law Appellate Tribunal (NCLAT) and the Adjudicating Authority (National Company Law Tribunal) were correct in rejecting the appellant’s claim for being filed late, without considering the Supreme Court’s orders extending limitation periods during the pandemic. The judgment was delivered by a two-judge bench comprising Justice Indira Banerjee and Justice J.K. Maheshwari.
Case Background
GPR Power Solutions Private Limited (the Appellant) is in the business of supplying and erecting piping systems. On April 25, 2012, Rohit Ferro Tech Limited (the Corporate Debtor, Respondent No. 3) placed a purchase order on the Appellant for the design, supply, erection, and testing of an LP piping system and commissioning of an LDO storage handling system for its power plant in Odisha. The initial contract was for ₹5,37,75,761/-, which was later amended to include additional work worth ₹88,64,239/-.
The Appellant claimed that the Corporate Debtor failed to pay ₹76,85,472/-. This led the Appellant to invoke the arbitration clause in their contract. The Calcutta High Court appointed an arbitrator on September 29, 2016, following an application by the Appellant under Section 11 of the Arbitration and Conciliation Act, 1996. The arbitrator published a final award on November 30, 2018, awarding the Appellant ₹55,01,661/-, along with interest and costs.
While the Corporate Debtor’s application to set aside the arbitral award was pending, the State Bank of India, a financial creditor of the Corporate Debtor, initiated the Corporate Insolvency Resolution Process (CIRP) against the Corporate Debtor on February 7, 2020. The CIRP was advertised on February 11, 2020, inviting claims from creditors. The Appellant, due to the COVID-19 pandemic and subsequent lockdown, was unaware of the CIRP until November 27, 2020. The Appellant then filed its claim with the Resolution Professional, which was rejected for being filed late. The Appellant then filed an application for condonation of delay, which was also rejected by the Adjudicating Authority.
Timeline
| Date | Event |
|---|---|
| April 25, 2012 | Corporate Debtor placed a purchase order with the Appellant. |
| September 29, 2016 | Calcutta High Court appointed an arbitrator. |
| November 30, 2018 | Arbitrator published the final award. |
| February 7, 2020 | CIRP initiated against the Corporate Debtor. |
| February 11, 2020 | CIRP was advertised, inviting claims. |
| March 25, 2020 | Countrywide lockdown imposed due to COVID-19 pandemic. |
| November 27, 2020 | Appellant became aware of the CIRP. |
| January 14, 2021 | Resolution Professional refused to entertain the Appellant’s claim. |
| March 8, 2021 | Supreme Court disposed of the suo motu writ petition regarding limitation extension. |
| July 9, 2021 | Adjudicating Authority dismissed the Appellant’s application for condonation of delay. |
| September 15, 2021 | NCLAT dismissed the Appellant’s appeal. |
| November 29, 2021 | Supreme Court allowed the appeal. |
Course of Proceedings
The Adjudicating Authority (National Company Law Tribunal, Kolkata Bench) dismissed the Appellant’s application for condonation of delay in filing its claim, citing that the Resolution Process had already been approved by the Committee of Creditors on June 21, 2020. The Appellant then appealed to the National Company Law Appellate Tribunal (NCLAT), which also dismissed the appeal, primarily on the same grounds. Both the Adjudicating Authority and the NCLAT failed to consider the orders passed by the Supreme Court in Suo Motu Writ Petition (Civil) No. 3 of 2020, which extended limitation periods due to the COVID-19 pandemic.
Legal Framework
The case primarily revolves around the interpretation of limitation periods in the context of the Insolvency and Bankruptcy Code, 2016 (IBC), and the impact of the Supreme Court’s orders extending limitation periods due to the COVID-19 pandemic. The relevant legal provisions include:
- Section 60(5) of the IBC: This section allows the Adjudicating Authority to deal with any question of law or fact arising in relation to the insolvency resolution or liquidation proceedings of a corporate debtor.
- Regulation 7 of the Insolvency and Bankruptcy Board of India (Insolvency Process for Corporate Persons) Regulations 2016: This regulation specifies the procedure for submitting claims by creditors in the CIRP.
- Section 11 of the Arbitration and Conciliation Act, 1996: This section deals with the appointment of arbitrators by the High Court.
- Section 34 of the Arbitration and Conciliation Act, 1996: This section deals with the application to set aside an arbitral award.
- Section 62 of the Insolvency and Bankruptcy Code, 2016: This section deals with appeals to the Supreme Court.
- Section 7 of the Insolvency and Bankruptcy Code, 2016: This section deals with the initiation of Corporate Insolvency Resolution Process (CIRP) by a financial creditor.
The Supreme Court’s orders in Suo Motu Writ Petition (Civil) No. 3 of 2020, particularly the orders dated March 23, 2020, and March 8, 2021, are also crucial. These orders extended limitation periods for all proceedings due to the pandemic. The order dated March 8, 2021, specifically stated that:
“In computing the period of limitation for any suit, appeal, application or proceeding, the period from 15.03.2020 till 14.03.2021 shall stand excluded. Consequently, the balance period of limitation remaining as on 15.03.2020, if any, shall become available with effect from 15.03.2021.”
Further, it stated that:
“In cases where the limitation would have expired during the period between 15.03.2020 till 14.03.2021, notwithstanding the actual balance period of limitation remaining, all persons shall have a limitation period of 90 days from 15.03.2021. In the event the actual balance period of limitation remaining, with effect from 15.03.2021, is greater than 90 days, that longer period shall apply.”
These orders were passed under Article 142 read with Article 141 of the Constitution of India, making them binding on all courts and tribunals.
Arguments
Appellant’s Submissions:
- The Appellant argued that it was not aware of the initiation of the CIRP against the Corporate Debtor due to the COVID-19 pandemic and the subsequent lockdown.
- The Appellant contended that the total claim against the Corporate Debtor was ₹1,13,38,651/- on the date of commencement of the CIRP.
- The Appellant submitted that it took immediate steps to file its claim once it became aware of the CIRP, and the delay was due to circumstances beyond its control.
- The Appellant emphasized that its application for condonation of delay should have been allowed, considering the Supreme Court’s orders extending limitation periods.
- The Appellant argued that the Adjudicating Authority and the NCLAT failed to consider the impact of the Supreme Court’s orders on limitation.
Respondent’s Submissions:
- The Respondent (Resolution Professional) argued that the Appellant’s claim was filed beyond the stipulated time and should not be entertained.
- The Respondent contended that the Resolution Process had already been approved by the Committee of Creditors, and therefore, no further claims could be entertained.
| Main Submission | Sub-Submissions (Appellant) | Sub-Submissions (Respondent) |
|---|---|---|
| Delay in Filing Claim |
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| Impact of Supreme Court Orders |
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| Total Claim |
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Issues Framed by the Supreme Court
The Supreme Court considered the following issue:
- Whether the Adjudicating Authority and the NCLAT were justified in rejecting the Appellant’s claim for being filed late, without considering the Supreme Court’s orders extending limitation periods due to the COVID-19 pandemic.
Treatment of the Issue by the Court
The following table demonstrates as to how the Court decided the issues:
| Issue | Court’s Decision |
|---|---|
| Whether the Adjudicating Authority and the NCLAT were justified in rejecting the Appellant’s claim for being filed late, without considering the Supreme Court’s orders extending limitation periods due to the COVID-19 pandemic. | The Supreme Court held that the Adjudicating Authority and the NCLAT erred in rejecting the Appellant’s claim without considering the Supreme Court’s orders extending limitation periods. The Court emphasized that the period from March 15, 2020, to March 14, 2021, should be excluded when computing limitation for any application. |
Authorities
The Supreme Court considered the following authorities:
- Suo Motu Writ Petition (Civil) No. 3 of 2020 – The Supreme Court of India, which extended the limitation period due to the COVID-19 pandemic.
- Article 142 of the Constitution of India – The Supreme Court’s power to pass orders to do complete justice.
- Article 141 of the Constitution of India – The law declared by the Supreme Court is binding on all courts within the territory of India.
| Authority | Court | How it was used |
|---|---|---|
| Suo Motu Writ Petition (Civil) No. 3 of 2020 | Supreme Court of India | The Court relied on its orders in this petition, which extended the limitation period due to the COVID-19 pandemic, to hold that the appellant’s claim should not have been rejected. |
| Article 142 of the Constitution of India | Supreme Court of India | The Court invoked its powers under Article 142 to ensure complete justice by allowing the appellant’s claim. |
| Article 141 of the Constitution of India | Supreme Court of India | The Court emphasized that its orders in the Suo Motu Writ Petition were binding on all courts and tribunals under Article 141. |
Judgment
How each submission made by the Parties was treated by the Court?
| Submission | Court’s Treatment |
|---|---|
| Appellant’s submission that it was unaware of the CIRP due to COVID-19 and lockdown. | The Court acknowledged the circumstances and the impact of the pandemic. |
| Appellant’s submission that the delay in filing the claim was due to circumstances beyond its control. | The Court accepted this argument, noting that the Supreme Court had extended limitation periods. |
| Appellant’s submission that the Adjudicating Authority and NCLAT failed to consider the Supreme Court’s orders on limitation. | The Court agreed that both the Adjudicating Authority and NCLAT had erred in not considering the orders extending limitation. |
| Respondent’s submission that the claim was filed beyond the stipulated time. | The Court rejected this argument, stating that the limitation period was extended due to the Supreme Court’s orders. |
| Respondent’s submission that the Resolution Process was already approved. | The Court did not accept this as a valid reason to reject the claim, given the extended limitation period. |
How each authority was viewed by the Court?
- The Supreme Court’s orders in Suo Motu Writ Petition (Civil) No. 3 of 2020 were the cornerstone of the judgment. The Court emphasized that the orders were binding on all courts and tribunals and that the limitation period was extended due to the COVID-19 pandemic. The court stated that, “In computing the limitation for any application, the period from 22.03.2020 till 14.3.2021 is to be excluded. All litigants whose limitation expired after 22.03.2020 would be entitled to extension of limitation till the 90th day from 15.03.2021.”
What weighed in the mind of the Court?
The Supreme Court’s decision was primarily influenced by the need to ensure that the extraordinary circumstances caused by the COVID-19 pandemic did not unfairly prejudice litigants. The court emphasized the binding nature of its orders extending limitation periods and highlighted the failure of the lower tribunals to consider these orders. The Court’s reasoning was driven by a sense of fairness and the need to uphold the principles of natural justice, ensuring that genuine claims are not rejected due to delays caused by the pandemic.
The Court’s reasoning can be broken down into the following key points:
- Binding Nature of Supreme Court Orders: The Court reiterated that its orders in the Suo Motu Writ Petition were binding on all courts and tribunals under Article 141 of the Constitution.
- Impact of COVID-19: The Court acknowledged the extraordinary circumstances created by the pandemic and the need to provide relief to litigants affected by it.
- Exclusion of Limitation Period: The Court emphasized that the period from March 15, 2020, to March 14, 2021, should be excluded when computing limitation for any application.
- Fairness and Natural Justice: The Court’s decision was driven by a sense of fairness and the need to ensure that genuine claims are not rejected due to delays caused by the pandemic.
| Sentiment | Percentage |
|---|---|
| Binding Nature of Supreme Court Orders | 30% |
| Impact of COVID-19 | 25% |
| Exclusion of Limitation Period | 30% |
| Fairness and Natural Justice | 15% |
Fact:Law Ratio
| Category | Percentage |
|---|---|
| Fact | 20% |
| Law | 80% |
The Court’s decision was primarily driven by legal considerations (80%), focusing on the interpretation and application of the Supreme Court’s orders and the relevant provisions of the Constitution. The factual aspects (20%) of the case, such as the appellant’s unawareness of the CIRP due to the pandemic, served as the backdrop for the legal analysis.
Logical Reasoning
Key Takeaways
- The Supreme Court’s orders extending limitation periods due to the COVID-19 pandemic are binding on all courts and tribunals.
- The period from March 15, 2020, to March 14, 2021, must be excluded when computing limitation for any application.
- Claims should not be rejected solely on the grounds of delay if the delay occurred during the pandemic and was covered by the Supreme Court’s extension orders.
- Lower courts and tribunals must consider the impact of the Supreme Court’s orders on limitation while adjudicating cases.
- The judgment reinforces the principle that extraordinary circumstances require flexibility in the application of procedural laws to ensure fairness and justice.
Directions
The Supreme Court allowed the appeal, set aside the impugned judgment and order of the NCLAT, and also set aside the order of the Adjudicating Authority. The application of the appellant under Section 60(5) of the IBC was allowed.
Development of Law
The ratio decidendi of the case is that the Supreme Court’s orders extending limitation periods due to the COVID-19 pandemic must be strictly adhered to by all courts and tribunals. The judgment clarifies that any delay in filing claims during the specified period should be condoned, and claims should not be rejected solely on the grounds of such delay. This ruling reinforces the principle that procedural laws must be interpreted in a manner that promotes justice and fairness, especially in extraordinary circumstances.
This judgment also highlights the binding nature of the Supreme Court’s orders under Article 141 of the Constitution, which ensures uniformity and consistency in the application of law across the country.
Conclusion
In conclusion, the Supreme Court’s judgment in GPR Power Solutions vs. Supriyo Chaudhuri emphasizes the importance of considering the Supreme Court’s orders extending limitation periods during the COVID-19 pandemic. The Court held that the Adjudicating Authority and the NCLAT erred in rejecting the Appellant’s claim without considering these orders. The judgment underscores the need for flexibility and fairness in applying procedural laws, especially in extraordinary circumstances, and reinforces the binding nature of the Supreme Court’s orders on all lower courts and tribunals.