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Vashdeo R Bhojwani (S) v. Abhyudaya Co-Operative Bank Ltd. And Another (S).
Factual and Procedural Background
A loan default of Rs. 6.7 crores was recorded against Respondent No. 2, which was declared a Non-Performing Asset (NPA) by Abhyudaya Cooperative Bank Limited on 23 December 1999. A Recovery Certificate for the outstanding amount was issued on 24 December 2001.
Following a merger between Abhyudaya Cooperative Bank and another cooperative bank in 2006, Respondent No. 1 claimed to be the assignee of the debt. On 21 July 2017 it filed an application under Section 7 of the Insolvency and Bankruptcy Code, 2016 (IBC) before the National Company Law Tribunal (NCLT) for initiation of the Corporate Insolvency Resolution Process against Respondent No. 2. The NCLT admitted the application on 5 March 2018, holding that the default was “continuing” and therefore not barred by limitation.
On appeal, the National Company Law Appellate Tribunal (NCLAT) affirmed the NCLT’s order on 5 September 2018, reiterating that the cause of action was continuing and that the Recovery Certificate of 2001 demonstrated an undisputed default.
The present judgment is the Supreme Court’s decision in the appeal against the NCLAT order.
Legal Issues Presented
- Whether the Limitation Act, 1963 applies to applications filed under Section 7 of the IBC from the inception of the Code.
- If so, whether the Section 7 application filed on 21 July 2017 is barred by Article 137 of the Limitation Act, given that the Recovery Certificate was issued on 24 December 2001.
- Whether Section 23 of the Limitation Act (continuing cause of action for a “continuing wrong”) saves limitation in the present case.
Arguments of the Parties
Appellant's Arguments
- The Limitation Act applies to Section 7 IBC applications; therefore Article 137 (three-year limitation) governs the petition.
- The right to sue accrued, at the latest, on 24 December 2001 when the Recovery Certificate was issued; hence the 2017 application is time-barred.
Respondent's Arguments
- The default constitutes a “continuing cause of action,” attracting Section 23 of the Limitation Act and thereby excluding any limitation period.
- The Recovery Certificate merely evidences a subsisting liability that remains unpaid, so limitation does not begin to run afresh.
Table of Precedents Cited
| Precedent | Rule or Principle Cited For | Application by the Court |
|---|---|---|
| B.K. Educational Services Pvt. Ltd. v. Parag Gupta & Associates, 2018 (14) Scale 482 | Article 137 of the Limitation Act applies to Sections 7 and 9 IBC applications from the inception of the Code; limitation begins when default occurs. | The Court applied paragraph 27 of this judgment to hold that the Section 7 application filed more than three years after the 2001 default is prima facie barred. |
| Balakrishna Savalram Pujari Waghmare v. Shree Dhyaneshwar Maharaj Sansthan, [1959] Supp. (2) S.C.R. 476 | Section 23 of the Limitation Act addresses “continuing wrongs,” not merely continuing effects of a completed act. | The Court relied on this case to reject the respondent’s reliance on Section 23, holding that issuance of the Recovery Certificate was a completed injury, not a continuing wrong. |
Court's Reasoning and Analysis
The Supreme Court first reaffirmed, via B.K. Educational Services, that the Limitation Act applies to insolvency applications under Sections 7 and 9 of the IBC, and that Article 137 imposes a three-year period from the date of default.
It then examined the respondent’s attempt to invoke Section 23 of the Limitation Act. Citing Balakrishna Savalram, the Court distinguished between a “continuing wrong” (which can extend limitation) and the mere continuing consequences of a past, completed wrongful act. The Court held that the Recovery Certificate dated 24 December 2001 “injured effectively and completely” the appellant’s rights; therefore, the cause of action was complete on that date and limitation commenced immediately.
Because more than three years elapsed between 24 December 2001 and the filing of the Section 7 application on 21 July 2017, and no case for condonation of delay under Section 5 of the Limitation Act was made out, the application was time-barred. The NCLT and NCLAT erred in treating the debt as a continuing cause of action.
Holding and Implications
APPEAL ALLOWED; orders of the NCLT (5 March 2018) and NCLAT (5 September 2018) are set aside.
Consequently, the Section 7 IBC application filed by Respondent No. 1 stands rejected as barred by limitation. No order as to costs was made.
The decision reinforces that Article 137 of the Limitation Act governs insolvency applications from the outset of the IBC and clarifies that Section 23 cannot be invoked where the alleged default is not a “continuing wrong.”
Rohinton Fali Nariman, J.:— In the facts of the present case, at the relevant time, a default of Rs. 6.7 Crores was found as against the respondent No. 2. The respondent No. 2 had been declared a NPA by Abhyudaya Cooperative Bank Limited on 23.12.1999. Ultimately, a Recovery Certificate dated 24.12.2001 was issued for this amount. A Section 7 petition was filed by the Respondent No. 1 on 21.07.2017 before the NCLT claiming that this amount together with interest, which kept ticking from 1998, was payable to the respondent as the loan granted to Respondent No. 2 had originally been assigned, and, thanks to a merger with another Cooperative Bank in 2006, the respondent became a Financial Creditor to whom these moneys were owed. A petition under Section 7 was admitted on 05.03.2018 by the NCLT, stating that as the default continued, no period of limitation would attach and the petition would, therefore, have to be admitted.
2. An appeal filed to the NCLAT resulted in a dismissal on 05.09.2018, stating that since the cause of action in the present case was continuing no limitation period would attach. It was further held that the Recovery Certificate of 2001 plainly shows that there is a default and that there is no statable defence.
3. Having heard learned Counsel for both parties, we are of the view that this is a case covered by our recent judgment in B.K. Educational Services Private Limited v. Parag Gupta and Associates, 2018 (14) Scale 482, para 27 of which reads as follows:—
“27. It is thus clear that since the Limitation Act is applicable to applications filed under Sections 7 and 9 of the Code from the inception of the Code, Article 137 of the Limitation Act gets attracted. “The right to sue”, therefore, accrues when a default occurs. If the default has occurred over three years prior to the date of filing of the application, the application would be barred under Article 137 of the Limitation Act, save and except in those cases where, in the facts of the case, Section 5 of the Limitation Act may be applied to condone the delay in filing such application.”
4. In order to get out of the clutches of para 27, it is urged that Section 23 of the Limitation Act would apply as a result of which limitation would be saved in the present case. This contention is effectively answered by a judgment of three learned Judges of this Court in Balkrishna Savalram Pujari v. Shree Dnyaneshwar Maharaj Sansthan, [1959] Supp. (2) S.C.R. 476. In this case, this Court held as follows:
“… …. In dealing with this argument it is necessary to bear in mind that s.23 refers not to a continuing right but to a continuing wrong. It is the very essence of a continuing wrong that it is an act which creates a continuing source of injury and renders the doer of the act responsible and liable for the continuance of the said injury. If the wrongful act causes an injury which is complete, there is no continuing wrong even though the damage resulting from the act may continue. If, however, a wrongful act is of such a character that the injury caused by it itself continues then the act constitutes a continuing wrong. In this connection it is necessary to draw a distinction between the injury caused by the wrongful act and what may be described as the effect of the said injury. It is only in regard to acts which can be properly characterised as continuing wrongs that s.23 can be invoked. Thus considered it is difficult to hold that the trustees' act in denying altogether the alleged rights of the Guravs as hereditary worshippers and in claiming and obtaining possession from them by their suit in 1922 was a continuing wrong. The decree obtained by the trustees in the said litigation had injured effectively and completely the appellants' rights though the damage caused by the said decree subsequently continued…” (at page 496)
5. Following this judgment, it is clear that when the Recovery Certificate dated 24.12.2001 was issued, this Certificate injured effectively and completely the appellant's rights as a result of which limitation would have begun ticking.
6. This being the case, and the claim in the present suit being time barred, there is no doubt that is due and payable in law. We allow the appeal and set aside the orders of the NCLT and NCLAT. There will be no order as to costs.
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