Sagar Sharma And Another v. Phoenix Arc Private Limited And Another, Supreme Court Of India, Judgment, Law, casemine.com

Citation Codes

Equivalent Citations

citation codes

Case Number

Civil Appeal No. 7673 of 2019, decided on September 30, 2019

Disposition

allowed

Advocates

Mukul Rohatgi, Dr A.M. Singhvi and K.V. Viswanathan, Senior Advocates (Mahesh Agarwal, Rishi Agrawala, Himanshu Satija, Shadab Jan, Ms Komal Khushalani, Arshit Anand, E.C. Agrawala, Nishant Rao and Divyang Gobind Chandiramani, Advocates) ;
Rakesh Dwivedi, Senior Advocate (Suresh Dutt Dobhal, Nirmal Goenka, Kunal Vajani, Kunal Mimani and Varun Ahuja, Advocates)

Judges

Rohinton Fali Nariman
V. Ramasubramanian, JJ.

Acts

Section 7 of the Code
Insolvency and Bankruptcy Code (effective from 1-12-2016)
Limitation Act, Article 61
Article 141 of the Constitution of India
Section 22 of the Limitation Act
Limitation Act, Article 137
Article 137 of the Limitation Act

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Smart Summary

Factual and Procedural Background

The appeal arose from a judgment of the National Company Law Appellate Tribunal (NCLAT) reported at 2019 SCC OnLine NCLAT 617. In that decision, the NCLAT held that because the Insolvency and Bankruptcy Code, 2016 (IBC) came into force on 1-12-2016, the limitation period for filing an application under Section 7 of the Code began on that date. The NCLAT further proceeded on the footing that Article 62 (mis-stated as Article 61) of the Limitation Act, 1963, governing mortgage actions, applied to the Section 7 application on the basis that a deed of mortgage existed between the parties.

The Supreme Court, comprising Rohinton Fali Nariman, J., heard an appeal challenging the NCLAT’s reasoning, particularly in light of the Court’s earlier judgment in B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates (2019) 11 SCC 633. The Court had previously clarified that the date on which the IBC came into force is irrelevant for computing limitation and that Article 137 of the Limitation Act governs Section 7 applications.

Legal Issues Presented

Whether the coming into force of the Insolvency and Bankruptcy Code on 1-12-2016 can serve as the trigger date for limitation in applications filed under Section 7 of the Code.
Which provision of the Limitation Act, 1963—Article 137 or Article 62—applies to a Section 7 application initiated by a financial creditor.

Table of Precedents Cited

Precedent	Rule or Principle Cited For	Application by the Court
B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates, (2019) 11 SCC 633	(i) Limitation for IBC applications is not triggered by 1-12-2016; (ii) Article 137 applies to Section 7 applications.	The Supreme Court relied on this prior ruling to hold that NCLAT erred in treating 1-12-2016 as the trigger date and in applying Article 62. The Court reiterated that Article 137 alone governs Section 7 applications.

Court's Reasoning and Analysis

1. The Court invoked Article 141 of the Constitution, emphasising that its previous judgments are binding on all courts and tribunals. Consequently, the principles laid down in B.K. Educational Services had to be followed by the NCLAT.

2. The Court clarified that a Section 7 application is not an action to enforce a mortgage liability; rather, it is a statutory remedy for a financial creditor upon default exceeding the monetary threshold set by the IBC. Therefore, the mortgage-specific Article 62 of the Limitation Act is inapplicable.

3. Re-affirming its earlier view, the Court held that the limitation period for a Section 7 application is governed exclusively by Article 137, which provides a three-year period from the date of accrual of the right to apply. The commencement date of the IBC is “wholly irrelevant” to this calculation.

4. Because the NCLAT’s reasoning contravened settled law, its judgment was set aside. The matter was remanded to the NCLAT for fresh consideration in accordance with Article 137. The Court expressly permitted both parties to address factual issues afresh and recorded counsel’s intention to raise a plea under Section 22 of the Limitation Act.

Holding and Implications

Holding: The appeal is allowed; the impugned NCLAT judgment is set aside. The dispute is remanded to the NCLAT to be determined afresh on the basis that Article 137 of the Limitation Act applies. The NCLT order dated 29-1-2019 is stayed until further orders.

Implications: The decision reinforces that the limitation framework for insolvency petitions under Section 7 of the IBC is governed by Article 137 of the Limitation Act, not by the Code’s commencement date or mortgage-specific provisions. This maintains uniformity and certainty in limitation jurisprudence under the IBC but does not create new precedent beyond reaffirming existing Supreme Court authority.

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Sagar Sharma And Another v. Phoenix Arc Private Limited And Another

Rohinton Fali Nariman, J.— By our judgment dated 11-10-2018 in B.K. Educational Services (P) Ltd. v. Parag Gupta & Associates (2019) 11 SCC 633 (in paras 2, 22, 34, 38, 42 & 43) we had made it clear that the Insolvency and Bankruptcy Code's coming into force on 1-12-2016 is wholly irrelevant to the triggering of any limitation period for the purposes of the Code. However, we find that in the impugned judgment 2019 SCC OnLine NCLAT 617 the following statement is made:

“13. Admittedly, ‘I&B Code’ has come into force since 1-12-2016, therefore, the right to apply accrued to 1st Respondent on 1-12-2016. Therefore, we hold that the application under Section 7 was not barred by limitation.”

2. We had also made it clear beyond any doubt that for applications that will be filed under Section 7 of the Code, Article 137 of the Limitation Act will apply. However, we find in the impugned judgment 2019 SCC OnLine NCLAT 617 that Article 62 (erroneously stated to be Article 61) was stated to be attracted to the facts of the present case, considering that there was a deed of mortgage which was executed between the parties in this case. We may point out that an application under Section 7 of the Code does not purport to be an application to enforce any mortgage liability. It is an application made by a financial creditor stating that a default, as defined under the Code, has been made, which default amounts to Rs 1,00,000 (Rupees one lakh) or more which then triggers the application of the Code on settled principles that have been laid down by several judgments of this Court.

3. Article 141 of the Constitution of India mandates that our judgments are followed in letter and spirit. The date of coming into force of the IB Code does not and cannot form a trigger point of limitation for applications filed under the Code. Equally, since “applications” are petitions which are filed under the Code, it is Article 137 of the Limitation Act which will apply to such applications.

4. Accordingly, we set aside the judgment under appeal and direct that the matter be determined afresh. It will be open for both sides to argue the case on facts on the footing that Article 137 of the Limitation Act alone will apply. The appeal is allowed in the aforesaid terms.

5. The NCLT order dated 29-1-2019 shall remain stayed until further orders from Nclat.

6. Mr Rakesh Dwivedi, learned Senior Counsel, wishes to raise a plea based on Section 22 of the Limitation Act before Nclat. We record this statement.

Sagar Sharma And Another v. Phoenix Arc Private Limited And Another

Factual and Procedural Background

Legal Issues Presented

Table of Precedents Cited

Court's Reasoning and Analysis

Holding and Implications

Sagar Sharma And Another v. Phoenix Arc Private Limited And Another

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