Limitation under IBC: Section 238A and Article 137

When the Code was enacted, it did not say whether insolvency applications were subject to limitation, and creditors began filing on debts that had been unpaid for many years. The Insolvency Law Committee recommended applying the Limitation Act, and section 238A was inserted in 2018. The Supreme Court has since settled that applications must be filed within three years of default, subject to acknowledgments and fresh causes of action, and that appeals must be filed strictly within time. This note explains these rules and the leading cases.

1. Section 238A

• Text. The provisions of the Limitation Act, 1963 shall, as far as may be, apply to the proceedings or appeals before the Adjudicating Authority, the National Company Law Appellate Tribunal, the Debt Recovery Tribunal or the Debt Recovery Appellate Tribunal.
• Insertion. Inserted by the 2018 amendment, with effect from 6 June 2018, on the recommendation of the Insolvency Law Committee.
• B.K. Educational Services v Parag Gupta and Associates, 2018. The Supreme Court held that the Limitation Act applies to applications under sections 7 and 9 from the inception of the Code, since the Code is not meant to revive time-barred debts; Article 137, the residuary article for applications, governs, giving three years from the date when the right to apply accrues, which is the date of default.

2. Running of Time

• Date of default. Time runs from the date of default, often the date on which the account was classified as a non-performing asset (Babulal Vardharji Gurjar v Veer Gurjar Aluminium, 2020)
• Not a continuing wrong. In Vashdeo R. Bhojwani v Abhyudaya Co-operative Bank (2019), the Court held that a default is not a continuing wrong, so section 22 of the Limitation Act does not give a fresh period each day the debt remains unpaid.
• Jignesh Shah v Union of India, 2019. A suit for recovery or other proceeding does not extend the limitation for a separate insolvency or winding up proceeding, which runs from the date of default.
• Article 137, not Article 62. Even where the debt is secured by a mortgage, an application under the Code is governed by Article 137 and not the twelve year period for enforcing a mortgage (Gaurav Hargovindbhai Dave v Asset Reconstruction Company, 2019)

Figure 1: Is the application within time?

3. Extending the Period

• Acknowledgment, section 18. A written acknowledgment of liability signed by the debtor before the period expires gives a fresh period of limitation from the date of acknowledgment.
• Asset Reconstruction Company v Bishal Jaiswal, 2021. Decided on 15 April 2021, the Supreme Court held that entries in the balance sheet of the corporate debtor may amount to an acknowledgment of debt under section 18, overruling a contrary Full Bench decision of the NCLAT; whether a particular entry is an acknowledgment depends on the facts, including any qualifying notes.
• Part payment, section 19. A payment on account of the debt made before the period expires also starts a fresh period.
• Guarantors. Acknowledgments by a corporate guarantor extend limitation against it (Laxmi Pat Surana, 2021; Topic 12)
• Decrees and recovery certificates. In Dena Bank v C. Shivakumar Reddy (2021), the Court held that a final decree or recovery certificate gives a fresh cause of action, so a section 7 application filed within three years of it is in time; it also allowed additional documents to be placed on record before the application is decided; in Kotak Mahindra Bank v A. Balakrishnan (2022), it held that the liability under a recovery certificate is a financial debt.

4. Other Provisions of the Limitation Act

• Section 5. In B.K. Educational (2018), the Court observed that section 5 may, in a given case, be applied to condone delay in filing an application under sections 7 or 9.
• Section 14. Time spent in good faith prosecuting proceedings in a court without jurisdiction may be excluded.
• Section 60(6) of the Code. In computing the limitation for any suit or application by a corporate debtor, the period of the moratorium is excluded.

5. Limitation for Appeals

Figure 2: Limitation for applications and appeals

• Section 61. An appeal to the NCLAT must be filed within thirty days, and the NCLAT may allow a further period not exceeding fifteen days if sufficient cause is shown.
• National Spot Exchange v Anil Kohli, 2021. The NCLAT cannot condone delay beyond the fifteen days, and the Supreme Court will not use Article 142 to override the statutory limit.
• V. Nagarajan v SKS Ispat and Power, 2021. Time runs from the date the order is pronounced in the presence of the parties, not from receipt of a certified copy; a diligent party must apply for a certified copy and cannot wait indefinitely for one.
• Section 62. An appeal to the Supreme Court on a question of law must be filed within forty-five days, extendable by fifteen days.

6. The COVID-19 Exclusion

In its suo motu proceedings on the extension of limitation, the Supreme Court directed that the period from 15 March 2020 to 28 February 2022 be excluded in computing limitation for all judicial and quasi-judicial proceedings, and that where limitation would have expired during that period, a minimum of ninety days from 1 March 2022 would be available. This applies to applications and appeals under the Code, separately from the bar in section 10A (Topic 15).

Figure 3: Leading cases on limitation

7. Frequently Asked Questions

Can a bank file under section 7 for a loan that became NPA five years ago?

Only if limitation was extended, for example by a written acknowledgment, a part payment or a balance sheet entry within the three years, or by a decree or recovery certificate obtained within the last three years. Otherwise the application is time-barred.

Does the limitation for an NCLAT appeal run from receipt of the order?

No. It runs from the date the order is pronounced. A party must apply promptly for a certified copy, as held in V. Nagarajan (2021).

Does a pending recovery suit stop time running for an insolvency application?

No. Time for an application under the Code runs from the date of default regardless of other proceedings, as held in Jignesh Shah (2019), unless a decree or recovery certificate gives a fresh cause of action.

8. Related Topics

• Topic 11: Section 7. Application by a financial creditor.
• Topic 15: Section 10A. The COVID-19 bar.
• Topic 73: Appeals to the NCLAT and the Supreme Court. Sections 61 and 62 in detail.