Supreme Court Clarifies Moratorium Impact on Corporate Debtor’s Arbitration Claims: New Delhi Municipal Council vs. Minosha India Limited (2022) INSC 423

Date of the Judgment: April 27, 2022
Citation: (2022) INSC 423
Judges: K.M. Joseph, J. and Hrishikesh Roy, J.

Can a corporate debtor take advantage of the moratorium imposed under the Insolvency and Bankruptcy Code (IBC) to extend the limitation period for initiating arbitration proceedings? The Supreme Court of India recently addressed this question in a case between the New Delhi Municipal Council and Minosha India Limited. The core issue was whether Section 60(6) of the IBC allows a corporate debtor to exclude the moratorium period when calculating the limitation for filing an application under Section 11(6) of the Arbitration and Conciliation Act, 1996. The court, in a judgment authored by Justice K.M. Joseph, clarified the scope of the moratorium in relation to arbitration proceedings initiated by the corporate debtor.

Case Background

In 2015, the New Delhi Municipal Council (the appellant) placed a purchase order of ₹16,20,00,000 with Minosha India Limited (the respondent). The appellant later terminated the contract, citing inaction and non-responsiveness from the respondent.

The respondent challenged this termination, which eventually led to the High Court of Delhi directing the appellant to provide a hearing. The appellant rejected the respondent’s representation on May 17, 2016. Subsequently, the respondent invoked the arbitration clause on June 7, 2016. The appellant, in its reply on July 20, 2016, did not agree to the respondent’s suggested arbitrators and proposed arbitration through the Delhi International Arbitration Centre (DIAC).

On May 14, 2018, the National Company Law Tribunal (NCLT) Mumbai admitted an application under Section 10 of the IBC against the respondent and declared a moratorium. A resolution plan was approved by the NCLT on November 28, 2019. Subsequently, on November 25, 2020, the respondent filed an application under Section 11(6) of the Arbitration and Conciliation Act, 1996, seeking the appointment of an arbitrator.

Timeline

Course of Proceedings

The High Court of Delhi allowed the respondent’s application under Section 11(6) of the Arbitration and Conciliation Act, 1996. The High Court noted that the arbitration mechanism in the purchase order could not operate due to Section 12(5) of the 1996 Act, read with the Seventh Schedule. This was because the Chairperson of the New Delhi Municipal Council would be ineligible to appoint the arbitrator. The High Court, therefore, appointed a former Chief Justice of a High Court as the arbitrator, as both parties agreed to an independent arbitrator under the aegis of DIAC.

Legal Framework

The primary legal provisions in this case are:

• Section 60(6) of the Insolvency and Bankruptcy Code (IBC): This section states that, “Notwithstanding anything contained in the Limitation Act, 1963 or in any other law for the time being in force, in computing the period of limitation specified for any suit or application by or against a corporate debtor for which an order of moratorium has been made under this Part, the period during which such moratorium is in place shall be excluded.”
• Section 14 of the IBC: This section outlines the moratorium that is imposed upon the admission of an insolvency application, prohibiting the institution or continuation of suits or proceedings against the corporate debtor.
• Section 25(2)(b) of the IBC: This section specifies that the resolution professional can “represent and act on behalf of the corporate debtor with third parties, exercise rights for the benefit of the corporate debtor in judicial, quasi-judicial or arbitration proceedings.”
• Section 11(6) of the Arbitration and Conciliation Act, 1996: This section deals with the procedure for the appointment of an arbitrator when parties fail to agree.
• Section 3 of the Limitation Act, 1963: This section mandates the dismissal of any suit, appeal, or application filed after the prescribed limitation period, even if the defense of limitation is not raised.

Arguments

Appellant’s Arguments:

• The appellant argued that the application under Section 11(6) of the Arbitration and Conciliation Act, 1996, was time-barred. They contended that the limitation period expired on July 20, 2019, based on their reply dated July 20, 2016, to the respondent.
• The appellant contended that Section 60(6) of the IBC should not apply in this case. They argued that the moratorium under Section 14 of the IBC does not prevent a corporate debtor from initiating proceedings. Therefore, the respondent should not benefit from the exclusion of the moratorium period.
• The appellant asserted that the Resolution Professional had the power to initiate proceedings under Section 11(6) of the Arbitration and Conciliation Act, 1996, during the moratorium period, as per Section 25(2)(b) of the IBC. Thus, the respondent’s delay was not justified.
• The appellant argued that the phrase “for which an order of moratorium has been made under this part” in Section 60(6) of the IBC should be interpreted to mean that the exclusion of time should only apply to proceedings that are directly affected by the moratorium. They contended that the present application was not such a proceeding.
• The appellant argued that the purpose of the law of limitation is to prevent stale claims. They claimed that the respondent’s delay in initiating arbitration had prejudiced their ability to defend themselves due to the unavailability of documents and witnesses.
• The appellant pointed out that a resolution plan had been approved and its impact should be considered. The respondent’s claim that it discovered the need to file the application late was incomprehensible as the corporate debtor continued to exist during the moratorium and was managed by the Resolution Professional.

Respondent’s Arguments:

• The respondent argued that the appellant’s conduct was not honest, as they had initially agreed to arbitration through DIAC.
• The respondent highlighted that the High Court’s order was essentially a consent order, and therefore, the appeal should not be allowed.
• The respondent contended that Section 60(6) of the IBC clearly states that the moratorium period should be excluded when computing the limitation period for any suit or application by or against a corporate debtor.
• The respondent argued that the moratorium period is intended to provide a “calm period” for the corporate debtor to attempt a revival. This period should be excluded from the limitation period, even for proceedings initiated by the corporate debtor.
• The respondent relied on the report of the Joint Committee of the Insolvency and Bankruptcy Code 2015, which suggested adding the words “or against a corporate debtor” to Section 60(6), indicating that the exclusion was intended to benefit both the corporate debtor and its creditors.
• The respondent contended that while the Resolution Professional could have initiated proceedings under Section 11(6) of the Arbitration and Conciliation Act, 1996, the express words of Section 60(6) of the IBC must be given effect.

Submissions of Parties

Issues Framed by the Supreme Court

The primary issue framed by the Supreme Court was:

1. Whether Section 60(6) of the Insolvency and Bankruptcy Code (IBC) gives a new lease of life to a proceeding at the instance of the corporate debtor based on a moratorium imposed under Section 14 of the IBC, and whether the corporate debtor can take advantage of the same to bring an application under Section 11(6) of the Arbitration and Conciliation Act, 1996.

Treatment of the Issue by the Court

Authorities

The Supreme Court considered the following authorities:

Judgment

The Supreme Court dismissed the appeal, holding that Section 60(6) of the IBC does indeed extend the limitation period for a corporate debtor to initiate proceedings during the moratorium period.

What weighed in the mind of the Court?

The Supreme Court’s decision was primarily influenced by the literal interpretation of Section 60(6) of the IBC. The Court emphasized that the language of the provision is clear and unambiguous, explicitly stating that the moratorium period must be excluded when calculating the limitation period for any suit or application by or against a corporate debtor. The Court also considered the purpose of the IBC, which is to revive ailing corporate debtors, and concluded that excluding the moratorium period aligns with this objective. The Court acknowledged that the Resolution Professional could have initiated the proceedings but held that this did not negate the benefit of Section 60(6). The Court also rejected the appellant’s argument that the phrase “for which an order of moratorium has been made under this part” limits the scope of exclusion, stating that it is merely a point of reference.

The Court rejected the argument that the phrase “for which an order of moratorium has been made under this part” limits the scope of exclusion. The Court stated, “The words for which an order of Moratorium has been made under this part is intended to be the point of reference or the premise for the exclusion of the time for the purpose of computing the period of limitation.”

The Court also emphasized that the words “any suit or application” in Section 60(6) are broad and inclusive. The Court stated, “We cannot overlook also the employment of words ‘any suit or application’. This is apart, no doubt, from the words ‘by a corporate debtor’.”

The Court concluded that interpreting the statute as the appellant suggested would deny the benefit of extending the period of limitation to the corporate debtor, which would be contrary to the clear words of the statute. The Court stated, “Interpreting the statute in the manner which the appellant seeks would result in our denying the benefit of extending the period of limitation to the corporate debtor, a result, which we think, would not be warranted by the clear words used in the statute.”

Key Takeaways

• Section 60(6) of the Insolvency and Bankruptcy Code (IBC) extends the limitation period for a corporate debtor to initiate any suit or application, including arbitration proceedings, by excluding the moratorium period.
• The moratorium period under Section 14 of the IBC is excluded from the computation of limitation, even for proceedings initiated by the corporate debtor.
• The phrase “for which an order of moratorium has been made under this part” in Section 60(6) is a point of reference and does not limit the scope of the exclusion.
• The decision emphasizes a literal interpretation of Section 60(6) of the IBC, while also considering the purpose of the IBC to revive ailing corporate debtors.
• This ruling provides clarity on the interaction between the IBC and the Limitation Act, especially concerning the rights of corporate debtors during a moratorium.

Directions

The Supreme Court did not give any specific directions, but dismissed the appeal.

Specific Amendments Analysis

There is no specific amendment discussed in this judgment.

Development of Law

The ratio decidendi of this case is that Section 60(6) of the Insolvency and Bankruptcy Code (IBC) explicitly allows the exclusion of the moratorium period when calculating the limitation period for any suit or application by or against a corporate debtor, including arbitration proceedings. This clarifies that the benefit of the moratorium extends to corporate debtors initiating legal actions, not just to actions against them. This case settles the position that the moratorium period is excluded even when the corporate debtor is the applicant.

Conclusion

In conclusion, the Supreme Court has clarified that Section 60(6) of the IBC provides a clear exclusion of the moratorium period for calculating limitation in proceedings initiated by a corporate debtor. This ruling ensures that corporate debtors undergoing insolvency proceedings are not disadvantaged in pursuing their legal rights due to the moratorium. The Court’s emphasis on the literal interpretation of the provision, along with the purpose of the IBC, establishes a significant precedent for the interaction between insolvency law and limitation periods.