Supreme Court Clarifies Limitation for IBC Appeals: Nagarajan vs. SKS Ispat (22 October 2021)

Introduction

Date of the Judgment: 22 October 2021
Citation: 2021 INSC 711
Judges: Dr. Dhananjaya Y Chandrachud, J., Vikram Nath, J., and BV Nagarathna, J. (authored by Dr. Dhananjaya Y Chandrachud, J.)

When does the clock start ticking for filing an appeal against an order under the Insolvency and Bankruptcy Code, 2016 (IBC)? The Supreme Court recently addressed this critical question, clarifying the limitation period for appeals under the IBC. This judgment emphasizes the importance of adhering to the strict timelines prescribed by the IBC, impacting how insolvency proceedings are handled. The Supreme Court held that the limitation period for filing an appeal under the IBC starts from the date of pronouncement of the order, and not from the date when a copy of the order is made available.

Case Background

Cethar Ltd, a company undergoing liquidation, had its interim resolution professional and later liquidator, the appellant, initiate proceedings against preferential and undervalued transactions. The appellant later discovered an alleged fraud involving SKS Ispat and Power Ltd (Respondent No. 1) and its subsidiary, SKS Power Generation Chhattisgarh Ltd (Respondent No. 10). Respondent No. 10 sought to invoke bank guarantees issued by Cethar Ltd. The appellant filed a Miscellaneous Application to prevent this invocation until liquidation proceedings concluded. The National Company Law Tribunal (NCLT) dismissed this application on 31 December 2019, stating that performance guarantees are not part of ‘Security Interest’ under the IBC. The appellant claims the NCLT order was uploaded on the website on 12 March 2020 with an incorrect name of the Judicial member, and a corrected order was uploaded on 20 March 2020. The appellant applied for a free copy on 23 March 2020, which was not issued. The appeal was filed before the National Company Law Appellate Tribunal (NCLAT) on 8 June 2020, with an application for exemption from filing a certified copy.

Timeline

Legal Framework

The Supreme Court considered the following legal provisions:

• Section 62 of the Insolvency and Bankruptcy Code, 2016 (IBC): This section provides for appeals to the Supreme Court against orders of the NCLAT.
• Section 61 of the IBC: This section allows any person aggrieved by an order of the Adjudicating Authority (NCLT) to appeal to the NCLAT, with a limitation period of thirty days, extendable by fifteen days. The provision states:

  “61. Appeals and Appellate Authority. —(1) Notwithstanding anything to the contrary contained under the Companies Act, 2013, any person aggrieved by the order of the Adjudicating Authority under this part may prefer an appeal to the National Company Law Appellate Tribunal. (2) Every appeal under sub -section (1) shall be filed within thirty days before the National Company Law Appellate Tribunal: Provided that the National Company Law Appellate Tribunal may allow an appeal to be filed after the expiry of the said period of thirty days if it is satisfied that there was sufficient cause for not filing the appeal but such period shall not exceed fifteen days…….”

• Section 238 of the IBC: This section states that the provisions of the IBC shall have effect notwithstanding anything inconsistent therewith contained in any other law for the time being in force.
• Section 238-A of the IBC: This section extends the application of the Limitation Act, 1963, to proceedings or appeals before the Adjudicating Authority and the NCLAT.
• Section 29(2) of the Limitation Act, 1963: This section states that where any special or local law prescribes a different period of limitation, the provisions of Section 3 of the Limitation Act shall apply.
• Section 420 of the Companies Act, 2013: This section deals with the orders of the NCLT and mandates that a copy of every order be sent to all parties concerned. The provision states:

  “420. Orders of Tribunal. —(1) The Tribunal may, after giving the parties to any proceeding before it, a reasonable opportunity of being heard, pass such orders thereon as it thinks fit. (2) The Tribunal may, at any time within two years from the date of the order, with a view to rectifying any mistake apparent from the record, amend any order passed by it, and shall make such amendment, if the mistake is brought to its notice by the parties: Provided that no such amendment shall be made in respect of any order against which an appeal has been preferred under this Act. (3) The Tribunal shall send a copy of every order passed under this section to all the parties concerned.”

• Section 421(3) of the Companies Act, 2013: This section prescribes the period of limitation for filing an appeal to the NCLAT, stating that it shall be computed from the date when a copy is “made available to the person aggrieved”. The provision states:

  “421. Appeal from orders of Tribunal. —(1) Any person aggrieved by an order of the Tribunal may prefer an appeal to the Appellate Tribunal. (2) No appeal shall lie to the Appellate Tribunal from an order made by the Tribunal with the consent of parties. (3) Every appeal under sub -section (1) shall be filed within a period of forty -five days from the date on which a copy of the order of the Tribunal is made available to the person aggrieved and shall be in such form, and accompanied by such fees, as may be prescribed…..”

• Rule 50 of the National Company Law Tribunal Rules, 2016 (NCLT Rules): This rule mandates the NCLT Registry to share a free certified copy of the order to the parties. The provision states:

  “50. Registry to send certified copy. – The Registry shall send a certified copy of final order passed to the parties concerned free of cost and the certified copies may be made available with cost as per Schedule of fees, in all other cases.”

• Rule 22(2) of the National Company Law Appellate Tribunal Rules (NCLAT Rules): This rule mandates that an appeal must be accompanied by a certified copy of the impugned order. The provision states:

  “22. Presentation of appeal. – (1) Every appeal shall be presented in Form NCLAT -1 in triplicate by the appellant or petitioner or applicant or respondent, as the case may be, in person or by his duly authorised representative duly appointed in this behalf in the prescribed for m with stipulated fee at the filing counter and non- compliance of this may constitute a valid ground to refuse to entertain the same. (2) Every appeal shall be accompanied by a certified copy of the impugned order …..”

• Section 12 of the Limitation Act, 1963: This section provides guidance on reckoning the period of limitation and excludes the time taken by a party for obtaining a certified copy of the order.

  “12. Exclusion of time in legal proceedings. —(1) In computing the period of limitation for any suit, appeal or application, the day from which such period is to be reckoned, shall be excluded. (2) In computing the period of limitation for an appeal or an application for leave to appeal or for revision or for review of a judgment, the day on which the judgment complained of was pronounced and the time requisite for obtaining a copy of the decree, sentence or order appealed from or sought to be revised or reviewed shall be excluded. (3) Where a decree or order is appealed from or sought to be revised or reviewed, or where an application is made for leave to appeal from a decree or order, the time requisite for obtaining a copy of the judgment 3[* * *] shall also be excluded. (4) In computing the period of limitation for an application to set aside an award, the time requisite for obtaining a copy of the award shall be excluded. Explanation. —In computing under this section the time requisite for obtaining a copy of a decree or an order, any time taken by the court to prepare the decree or order before an application for a copy thereof is made shall not be excluded.”

Arguments

Appellant’s Submissions:

• The NCLT order was not uploaded until 12 March 2020, and a defective copy was uploaded initially. The corrected copy was uploaded on 20 March 2020.
• The appellant requested a free copy on 23 March 2020, but did not receive it.
• The Supreme Court’s suo motu order dated 23 March 2020, extended the limitation period from 15 March 2020.
• The appeal was filed within three days of receiving the order, which is within the thirty-day limitation period.
• Rule 22 of the NCLAT Rules mandates a certified copy, but Rule 14 allows for a waiver, which was granted in this case.
• Section 420(3) of the Companies Act and Rule 50 of the NCLT Rules mandate a free copy, and the limitation period should run from the date the free copy is issued, as held in Sagufa Ahmed v. Upper Assam Plywood Products Pvt Ltd [2021 (2) SCC 317].
• Section 12(2) of the Limitation Act applies from the date the copy is made available, not when the order is passed.
• Section 61 of the IBC is subservient to the principle of lex non cogit ad impossibilia (the law cannot mandate an impossible act).
• An application for condonation of delay was not required.
• The NCLAT did not hear arguments on limitation before reserving its orders.

Respondent’s Submissions:

• Section 61 of the IBC mandates an appeal within 30 days, extendable by 15 days, and the limitation period expired on 15 February 2020.
• Section 61(2) of the IBC does not state that limitation applies from the date the order is ‘made available’.
• The NCLT order was pronounced in open court on 31 December 2019, where the appellant was present.
• Section 12 of the Limitation Act requires an application for a certified copy to be filed within the limitation period.
• Rule 22 of the NCLAT Rules requires a certified copy of the order to be filed with the appeal.
• The appellant should have either waited for the free certified copy or applied for a certified copy within the limitation period.
• Time is of the essence under the IBC, as observed in Ebix Singapore Private Ltd v. Committee of Creditors of Educomp Solutions Ltd [2021 SCCOnLine SC 707] and Mobilox Innovations Private Ltd v. Kirusa Software Private Ltd [(2018) 1 SCC 353].
• Diligence is expected of the aggrieved party under the IBC.
• Respondent No. 1 and Respondent No. 10 are separate entities.
• The NCLT and NCLAT have issued concurrent findings that a performance guarantee is not a ‘security interest’.

Issues Framed by the Supreme Court

The Supreme Court framed the following issues:

1. When does the limitation period begin for appeals filed under the IBC?
2. Is the annexation of a certified copy mandatory for an appeal to the NCLAT against an order passed under the IBC?

Treatment of the Issue by the Court

Authorities

Cases Cited:

• Sagufa Ahmed v. Upper Assam Plywood Products Pvt Ltd [2021 (2) SCC 317] – Discussed the interpretation of Section 421(3) of the Companies Act and held that the limitation period would run from the date on which a copy of the order is made available to the aggrieved party.
• B K Educational Services (P) Ltd v. Parag Gupta and Associates [2019 (11) SCC 633] – Noted that the provisions of Chapter XXVII of the Companies Act would apply to proceedings under the IBC at the NCLT.
• Kalpraj Dharamshi v. Kotak Investment Advisors Ltd [2021 SCC OnLine SC 204] – Considered the applicability of Section 14 of the Limitation Act to the reckoning of limitation for an appeal filed under Section 61(1) of the IBC.
• Garikapati Veeraya v. Subbaiah Chaudhry [AIR 1957 SC 540] – Established that an appeal is a creature of statute and must have the clear authority of law.
• Ganga Bai v. Vijay Kumar [(1974) 2 SCC 393] – Established that an appeal is a creature of statute and must have the clear authority of law.
• Anant Mills Company Limited v. State of Gujarat [AIR 1975 SC 1234] – Established that an appeal is a creature of statute and must have the clear authority of law.
• Essar Steel India Ltd v. Satish Kumar Gupta [(2020) 8 SCC 531] – Held that the time-limit on court proceedings was violative of Article 14 but allowed a narrowly defined extension to the outer-limit in exceptional circumstances.
• Innoventive Industries Ltd v. ICICI Bank [(2018) 1 SCC 407] – Stressed on the importance of timelines in the insolvency resolution process.
• Gujarat Urja Vikas Nigam Ltd v. Amit Gupta [(2021) SCC OnLine 194] – Stressed on the importance of timelines in the insolvency resolution process.
• Mobilox Innovations Private Ltd v. Kirusa Software Private Ltd [(2018) 1 SCC 353] – Observed that timelines are sacrosanct under the IBC.
• Ebix Singapore Private Ltd v. Committee of Creditors of Educomp Solutions Ltd [2021 SCCOnLine SC 707] – Interpreted the legislative background of the IBC and stressed on the predictability and timeliness that is woven into the design of the IBC.
• Pr. Director General of Income Tax v. Spartek Ceramics India Ltd [2018 SCC OnLine NCLAT 289] – Held that the period of thirty days for filing an appeal commences from the date of the ‘knowledge’ of the order.
• Prowess International Pvt Ltd v. Action Ispat & Power Pvt Ltd, Company Appeal (AT) (Insolvency) 223 of 2017 (NCLAT, 26 March 2018) – Dismissed an appeal as time-barred under Section 61(2) of the IBC.
• Union of India v. Popular Construction Co. [(2001) 8 SCC 470] – Held that the court is not empowered to condone delays beyond statutory prescriptions in special statutes containing a provision for limitation.
• Singh Enterprises v. Commissioner of Central Excise, Jamshedpur [(2008) 3 SCC 70] – Held that the court is not empowered to condone delays beyond statutory prescriptions in special statutes containing a provision for limitation.
• Chhattisgarh State Electricity Board v. Central Electricity Regulatory Commission [(2010) 5 SCC 23] – Held that the court is not empowered to condone delays beyond statutory prescriptions in special statutes containing a provision for limitation.
• Bengal Chemists and Druggists Association v. Kalyan Chowdhury [(2018) 3 SCC 41] – Held that the court is not empowered to condone delays beyond statutory prescriptions in special statutes containing a provision for limitation.

Statutes and Rules:

• Insolvency and Bankruptcy Code, 2016 (IBC)
• Companies Act, 2013
• Limitation Act, 1963
• National Company Law Tribunal Rules, 2016 (NCLT Rules)
• National Company Law Appellate Tribunal Rules (NCLAT Rules)
• Insolvency and Bankruptcy Board of India (Insolvency Resolution Process for Corporate Persons) Regulations, 2016

Judgment

Decision

The Supreme Court dismissed the appeal, holding that:

• The limitation period for filing an appeal under Section 61(2) of the IBC begins from the date of pronouncement of the order, not from the date when a copy of the order is made available.
• The annexation of a certified copy is mandatory for an appeal to the NCLAT, and while waivers are possible, they are not automatic and do not negate the rule.
• The appellant failed to file the appeal within the prescribed limitation period and did not show sufficient diligence.

Ratio Decidendi

The ratio decidendi of this case is that the limitation period for filing an appeal under Section 61(2) of the Insolvency and Bankruptcy Code, 2016, begins from the date of pronouncement of the order by the Adjudicating Authority, and not from the date when a copy of the order is made available. Additionally, the annexation of a certified copy is mandatory for an appeal to the NCLAT.

Impact

This judgment clarifies the limitation period for filing appeals under the IBC, emphasizing the need for timely action. It sets a precedent for insolvency proceedings, reinforcing the importance of the strict timelines prescribed by the IBC. The judgment has the following implications:

• Timely Appeals: Parties must be vigilant and file appeals within the prescribed time limit, starting from the date of pronouncement of the order.
• Certified Copy: It is essential to apply for a certified copy of the order promptly and file it with the appeal.
• Diligence: Parties are expected to be diligent in pursuing their appeals and cannot rely on the delay in receiving a free copy of the order.
• IBC Timelines: The judgment reinforces the importance of adhering to the strict timelines prescribed by the IBC.

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