Limitation Act Not To Apply Under The Insolvency Code


October 30, 2017

Limitation Act Not To Apply Under The Insolvency Code?

The issue of whether the Limitation Act, 1963 is applicable to the Insolvency and Bankruptcy Code, 2016 (“the Code”) was recently addressed by the National Company Law Appellate Tribunal (“NCLAT”) for the first time in the matter of Neelkanth Township and Construction Pvt. Ltd. vs. Urban Infrastructure Trustee Ltd wherein the Ld. Tribunal has categorically held that the provisions of the Limitation Act, 1963 would not apply to the Code. In appeal, however the Supreme Court did not deal with the issue of applicability of the Limitation Act and kept the issue open for further interpretation. The relevant findings of the NCLAT are as follows:

“The I&B Code, 2016 is not an Act for recovery of money claim, it relates to initiation of Corporate Insolvency Resolution Process. If there is a debt which includes interest and there is default of debt and having continuous course of action, the argument that the claim of money by Respondent is barred by Limitation cannot be accepted.”

The same question was brought forth in Black Pearl Hotels Pvt. Ltd. vs. Planet M Retail Ltd. The Appellate tribunal did not deal with the issue of whether the Limitation Act, 1963 does or does not apply to the Code but opined that that even if it is assumed that the Limitation Act, 1963 does apply to the Code, then the period of limitation with regard to the Code, would only start running from 1st December 2016, the date on which the Code was notified.

This ruling implies that all debts can be acted upon under the Code till the coming to an end of the limitation period as accounted from 1st December 2016. Creditors have until 1st December 2019 to initiate proceedings under the Code. This will give the creditors a final opportunity to enforce debts under the Code.



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